Saving for your own home can seem like an impossible task for most millennials. Follow these handy tips to easily save for a property deposit.
Young adults born between 1980 and 2000, otherwise known as generation Y or millennials, are known for approaching everything differently - whether it’s values, technology or the way they explore property.
This younger generation are considered the future home buying force for property but may have a few challenges to face in the current market ahead.
According to regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett, most millennials are faced with the burden of student loan debt when starting out in their careers. For this generation, becoming financially secure and being able to build up the required funds to purchase their first property is harder in comparison to the older folk who still drive the property market in most sectors today.
“For some the idea of saving for a home while paying rent and making student loan payments is daunting to say the least. Although it might be impossible for some at this stage, for others it could be a matter of having the discipline to make certain sacrifices and set aside money rather than spend it,” says Goslett.
How to buy a house?
To buy a house in South Africa you will first want a good credit rating. From there on you will typically need:
• Enough of your own money to put down a 10% deposit
• To apply for a home loan
• More of your own money for administration fees
• To locate the home you wish to purchase and put in an offer
How much is needed for a deposit?
For millennials and first-time buyers in general, the prime obstacle to overcome is saving enough money for the mandatory deposit which generally requires between 10% and 30% of the property’s asking price in order to qualify for finance with a bank.
According to Betterlife bond application statistics, this past month saw an average deposit percentage of 21.17% for the purchases of properties valued around R860 000. A deposit of that sort required a down-payment of about R182 000 – a figure which is not an easy feat.
According to Goslett, to achieve a goal as big as this, it’s important to start out small and remain consistent by always putting money aside each month. “Mountains are climbed by taking one step after another. While the thought of saving an amount as large as R182 000 may seem like a massive deed for a younger buyer, it can be achieved by breaking the amount down into smaller, more manageable goals. Even if it is a matter of starting out setting aside small initial amounts – just get started,” advises Goslett, “the sooner, the better.”
A good way to save
Weighing out the difference between your current rental payment and the estimated bond repayment, alongside any other monthly costs such as bond insurance, homeowner insurance, rates and levies is the ideal way to find a happy medium when setting a monthly savings goal. The difference between the two should be set aside as your savings. “The benefits of this strategy are twofold,” says Goslett, “firstly it will build up your savings, and secondly it will help you to adjust to the anticipated cost of owning a property.”
Using this method will provide you with insight into what you can afford and whether you are 100% ready to own your own property. A good indication that you are in the right position to own your own home is if you are able to meet your savings goal every month without any hassle. If you’re finding it tougher to live up to your monthly goal, then restructuring your budget and choice of property is a must to ensure you are working towards something realistic and affordable.
Having a visual dream board with a picture of the type of house you are wanting to purchase will help to keep motivated and on track. “It is important to be reminded of why you are doing without certain things, and putting away savings. A visual image will be a daily reminder of the end goal,” Goslett advises.
Finding the savings
According to Goslett the first place to look for savings is in the property you currently rent. If your monthly rental is taking more than 30% of your income, then considering the option of a different rental space may elevate your chances of saving. “While it might mean scaling back, consider moving to a more affordable rental property. It doesn’t make sense to spend more money on a rental home, if it is holding you back from owning your own property,” he says.
Finding more savings will require the potential buyer to assess their current spending and scrutinize their every expense. “Money can be saved by making a packed lunch every day, instead of eating out. Other ways of saving include cancelling that gym contract and finding ways to exercise for free or travelling to and from work in a lift club. There are a number of ways to cut back on spending, it just takes some creativity,” says Goslett.
When’s the right time to buy?
The property market is never stagnant. The price of homes and interest rates are constantly shifting, which will always leave room for concern when trying to get your foot onto the property ladder. Waiting a little longer and having your finances in order first is best to ensure that you are fully ready. “Even if it means paying a slightly higher price at a higher rate, it is best to have a solid financial foundation and be confident that you can make the commitment that homeownership requires,” Goslett concludes.