One of the first things you learn about when considering buying a home is that you need a substantial deposit before making an offer to purchase.
A deposit on a residential property is usually around 10% of the purchase price, so you will need a significant amount of money upfront. For many would-be buyers, this may seem like an insurmountable obstacle, but don’t give up if you don’t have thousands in the bank. There are ways of buying a property without a deposit.
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Solution
A 100% home loan allows you to buy a home without having to put down a deposit. In addition, banks are still eager to lend to first-time home buyers with good credit records.
According to Kay Geldenhuys at ooba Home Loans, South Africa’s largest home loan comparison service, 60% of all the applications received by ooba are from buyers who have no access to deposits.
She says that four out of five applicants for 100 percent loans are approved. This is because banks are eager to cater to first-time home buyers, especially the younger market.
Disadvantages
A 100% home loan will get you a home quicker because you won’t have to wait while you save for a deposit. However, it will almost certainly cost you more in the long term because the interest rate on your loan will be higher than if you do have a deposit.
With a deposit, you’re showing the banks that you can finance at least a portion of your home purchase. This makes your loan less risky and indicates that you are financially responsible and, therefore, likely to keep up the monthly repayments.
Because the bank is taking on more risk by funding the entire purchase price, you are less likely to be granted a favourable interest rate.
Application
Each of the major banks have slightly different lending criteria, and some may be more willing to grant a 100% home loan than others. Your best option is to apply to all the banks, which is time-consuming if you do it yourself. However, you can do it through a mortgage originator such as ooba or Betterbond, which will submit your application to several banks simultaneously. This will enable you to compare deals and choose the one that best suits your needs.
Although the ideal is to show your commitment by putting down a deposit, it’s good to know you have the option of securing a home without having to make a significant investment upfront or wait several months before owning your home.
Most bond originators and banks offer a range of online tools, such as bond calculators, to facilitate the home-buying process.
Writer : Sarah-Jane Meyer