When buying your first home, it can feel a bit daunting to consider how to afford the monthly home loan repayments. It is possible to lessen this expense by paying a deposit. In addition to increasing the chances of securing a home loan, there are many other reasons why a deposit will benefit buyers in both the short and long term.
“To try and make it easier for first-time buyers to enter the market, financial institutions have become more willing to grant a 100% home loan, which means that first time buyers might not be required to pay a deposit to qualify for a home loan,” explains Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
That being said, Goslett explains that some sellers require that the buyer pays a deposit and will stipulate this in the offer to purchase. “This just provides the seller with more security that the buyer is serious and can afford to go through with the purchase. Buyers need to read the Offer to Purchase (OTP) carefully to make sure they are not caught off guard by this, as the sale will not go through until the required amount is paid,” he cautions.
For those who do not have to pay a deposit, Goslett warns that there will be bond and transfer costs above and beyond the asking price that will be payable upfront, regardless of whether you have paid a deposit or not. “This usually amounts to roughly 10% or more of the asking price. If you do not have this amount saved, you will either need to apply for a 110% home loan or take out a personal loan to cover these costs.”
“Apart from this, buyers should consider that providing a deposit will show both the seller and lender that you are serious about buying the property and can afford the purchase. This not only improves your chances of having your home loan application approved, but it can also lead to a possible lower interest rate on your home loan,” says Goslett.
In most cases, Goslett explains that a good deposit amount is usually around 10-20% of the seller’s asking price. However, he adds that you can pay more if you are able to and could possibly negotiate to pay less if you are unable to afford this amount. “Remember that the higher your deposit, the lower the amount you will need to borrow from the bank and the lower your monthly instalments will be.”
Goslett explains that once you have agreed to an amount, the deposit is not paid directly to the seller but rather to the transferring attorney, who will then place it into a trust account where it will be kept safe until the property transfer and registration is complete. The interest that is generated by the deposit will be paid to you after registration of the property.
In the event that the sale does not go through, Goslett explains that there are various possible outcomes for what will happen to your deposit. “If your OTP was contingent on your home loan approval, and for whatever reason your bond was not approved, your deposit will be refunded to you. However, if you withdraw your application, then you could be in breach of the contract and you might forfeit your deposit,” he cautions.
Buyers are reminded that the offer to purchase is a binding contract. If you, as the buyer, are in breach of the contract and it can’t be rectified within a specific time frame, you will lose your deposit and the seller has the right to use it to cover any legal costs that have been incurred from the deal falling through.
“Buying your first home can be a daunting experience, but it doesn’t have to be. With a reliable and knowledgeable real estate professional at your side, navigating the complexity of purchasing your first home can seem like a breeze.
Writer : Kayla Ferguson