Here's how choosing to rent a cheaper property for a while, will help you buy your own home much faster.
Busting the myth
Buying your very first home is a big leap of life, but it’s not a step to be taken lightly, especially during tough financial times. You may think you need to scrimp and save for your first deposit, but it’s easier than you realise. You CAN afford to save for a deposit for your own home, while you rent, and it’s easier than you think.
Downscale the dream
The average price paid by a first-time home buyer in South Africa is around R900 000. Coincidentally, no transfer fees are payable when you buy a property for R900 000 or less. Downscale your dream a little by choosing a home with no transfer duty on it, and it may be easier to achieve.
Do you need a deposit?
Mandy Waddington, Head of Marketing at ooba, shared some great insight with us recently: you may not need a deposit for your first home, at all.
Mandy explains, “There’s a huge opportunity for first time home buyers, especially if they’re looking to purchase a home for less than a million rand. More and more banks are willing to offer 0% deposit home loans, giving first time buyers a 100% home loan. 60% of first-time buyers have benefitted from this. People looking to buy their first home shouldn’t consider a deposit as a barrier to entry for their dream – it is possible to buy your first home!”
Although a deposit is not always necessary, having one does have some advantages. Your bank or bond originator may review your application more favourably if you’ve been able to set aside some money, and you’ll also save in the long run. Putting down a deposit for your first home pays off later on – even a 10% deposit will help you cut back on your monthly home loan repayments in a big way.
Can I rent and save?
Of course, while you’re waiting to buy your first home, you have to live somewhere! Consider your rental options carefully:
• Pick your suburb: Rather than renting that fabulous apartment in an upmarket area, choose a suburb that’s more affordable to rent in.
• Downsize while you save: Don’t sign up for a rental lease that gives you a flashy five-bedroom house with sea views, when you could manage with a two-bedroom duplex for two years.
• Set a limit: Most property and financial experts state that you shouldn’t spend more than a third of your annual income on rental housing. While you’re saving for your deposit, aim to spend less than a third of your income, so you can smash that dream home goal.
Doing the numbers
We’ve done the numbers for you on renting a less expensive property. If you work in Sandton, you’d like to live close to the office. Renting a 2-bedroom flat in Sandton would set you back R17 000 per month on average. But, if you spend a little time hunting for rental properties in nearby suburbs, you’ll save big every month. In nearby Linden, you can rent a 2-bedroom flat for just R8 000 per month on average. Saving the R9 000 per month difference between the two areas would allow you to save a whopping R216 000 over 2 years.
If you bought a property for a million rand without a deposit, your monthly bond repayment would be R9 650 per month at an interest rate of 10%, but if you put the R216 000 that you've saved down as a deposit, your monthly repayment drops to just R7 566 - a monthly saving of around R2 000.
In addition, by putting down the deposit and financing a lower amount, you would save around R500 000 over the course of a 20 year bond!
Ditch the idea of the flashy pad and pick the rental property that works for your needs right now. Punch your budget numbers into our affordability calculator to see how quickly you’ll be able to afford that deposit you desire.
Your credit score
Of course, being able to put down a deposit on your first home isn’t the only condition you need to fulfil - having a clean credit score is essential too.
Keep it clean by:
• Making your monthly payments on time, every time. Your payment history is a key indicator for calculating your credit score. A long credit history that reflects good payment behaviours goes a long way in helping you achieve a good credit score.
• Checking on your credit score, at least once a year. You can check for free once a year using online services.
• Keeping your credit limits high, but your amounts owing low.