Buying your first home ranks up there with the most exciting and terrifying experiences of your life. But given the current economic climate, it’s increasingly difficult for first-time buyers to get their foot on the property ladder.
Having a decent deposit will go a long way to securing your dream home, both in terms of getting a bond and lowering your monthly repayments. It also puts you in a better position to negotiate a lower interest rate with your bank.
What you can Afford
Many first-time buyers are hugely disappointed when they discover that what they thought they could buy isn’t what they can afford in reality. To avoid getting your hopes dashed, an online home loan calculator will give you an idea of your price bracket (try the Wealth Sense calculator here).
Remember, banks gauge what you can afford by using your disposable income, after deductions and expenses, as a benchmark. The bond instalment must not exceed 30% of your gross monthly income for a home loan to be approved.
You’ll also have to factor in transfer fees and other costs associated with a house purchase. Plus you need to budget for monthly expenses once you own a property, such as rates, insurance and maintenance costs.
Building up a Deposit
Banks are loathe to give 100% bonds, so the more you can offer as a deposit, the more leverage you have to negotiate a better interest rate, as the bank is taking a smaller risk on the money you borrow.
Opinions differ, but a safe bet is a deposit of between 8% and 10% of the purchase price, which should also cover transfer costs and other expenses. So, if you’re looking at a R1 million house, your deposit should be around R100 000.
Once you’ve built up a deposit, you can approach a bank for pre-approval on your home loan. They will issue a certificate that shows the type of transaction, bond amount and interest rate for which you are eligible. This will also give you considerably more influence with estate agents when buying a property because they know you’re serious.
How to Save
Saving money seems like a simple concept, but it does require planning and patience. The time it takes to accumulate a decent deposit very much depends on your financial circumstances, such as whether you have other outstanding debts such as student loans, car or credit card repayments.
- First draw up a budget and stick to it. Write down everything you spend, even the little things like that daily cappuccino from the coffee shop. It may not seem like much, but by foregoing this treat, you could save around R600 a month.
- Open a separate interest-bearing savings account and transfer a set amount every month, as well as any spare cash.
- Improve your credit rating by paying off outstanding debts. This will increase your disposable income and therefore your borrowing power.
So, if you aspire to buying your own home, the secret is to do your research, plan well in advance and build up a sizeable deposit to turn your dream into a reality.
By Nicci Botha