The top financial risks of buying a house – what you should know

The top financial risks of buying a house – what you should know

Owning a property is rewarding on so many levels. Not only is there a sense of security that comes from being able to call a physical space your ‘own’, there are also financial rewards associated with property ownership.  That said, it’s important to be aware of the risks involved in buying a property – so you can adequately plan ahead for any challenges that might come your way.

Home loan repayment defaults

The risks of buying a house are largely financial. For one, there’s the risk of not being able to pay off your home loan, either due to bad financial planning, or circumstances beyond your control, such as unemployment, divorce, or the death of a spouse.

Defaulting on your home loan repayments could incur additional fees and expenses – on top of your existing mortgage amount – and it could also tarnish your credit record. Worst-case scenario would be having your home repossessed to settle your debt with your financial lender.

What you can do: While there’s generally a late payment grace period for defaulters, it’s always best to contact your lender, as soon as you can, to explain the reasons for your non-payment. This indicates a willingness to take financial responsibility, and your lender may be more open to rearranging your repayments while you get your financial ducks back in a row.

Another wise decision  is to take out a Bond Protection Plan, to cover your bond instalments in the event of death, retrenchment or disability.

Limited or no returns on your investment

Another financial risk you take when buying a house is that your property might actually depreciate in value over time. Most homeowners buy property with the intention of seeing a positive return on investment should they sell – but this isn’t guaranteed. The type of structure built on the property doesn’t necessarily determine its long term value either; it’s the actual land on which the property is built that increases or decreases in value, depending on its location, supply and demand in the area, and general property market trends.

What you can do: Buy property in a location that’s in high demand and looks to stay that way in the future. Properties close to amenities, such as hospitals, schools and main arterial roads, are less likely to decrease in value over time. New property developments can also see good returns over the long term, depending on what other developments are planned for the area.

Water or fire damage woes

The other financial risks of buying a house include unexpected damage to a property due to fires, floods or other events beyond your control. There’s nothing worse than going away on holiday and coming home to a burst geyser that’s completely flooded your house!

What you can do: While all home loan lenders require a Home Owner’s Cover (HOC) policy as part of the home loan agreement, homeowners who’ve paid off their bonds do not always feel they need to have any form of homeowner insurance – which leaves them at risk. There were many tragic stories of families in the Knysna area who had their homes damaged or destroyed in the fires in June 2017, for example, and lost everything because they didn’t have insurance. So, even if you don’t have a bond and the compulsory insurance cover your bond provider requires, it would be prudent to have some form of insurance to protect your most valuable asset.

Contact SA Home Loans with any questions you may have about our Bond Protection or Home Loan products.

Source: SA Home Loans

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