A deposit can make a major difference to the long-term affordability of your home but saving up the money can be difficult for first time buyers. These tips will help you get to your savings target in no time.
I could get a 100% home loan, why do I need a deposit?
A deposit is important to home buyers for the following reasons:
- Improve your affordability and up your chances of getting your bond approved
- Put you in a better position to negotiate a more favourable interest rate since there is lower risk for the bank involved
- Save on interest being paid over the loan period
- Reduce your monthly instalment/ bond repayment
- Make you more attractive to sellers
- Increase your negotiating edge
The average price of property sold in South Africa is around R1 million, and if you don’t qualify for a 100% home loan, the bank may ask for a 10% deposit of around R100 000. This may seem impossible but Paul Stevens, CEO of Just Property, says that a few temporary tweaks to your lifestyle and spending habits could get you on the property ladder. Start by breaking down the total into monthly savings targets. Saving R100 000 over two years gives you a R50 000 target per year. Aim for R4 500 a month, Stevens advises, as some months you’ll come in a bit above, and some months a bit below.
Finding an extra R4 500 a month may sound difficult when you still have to cover living expenses, but the trick says Stevens is to consider it a short-term sacrifice. It is just 2 years after all.
10 ways to start saving for a deposit immediately:
1. Shop smarter
What do you absolutely love? Is really good coffee that gets you up in the morning? Choose three little luxuries, and at the beginning of the month buy those. Everything else, whether that’s cosmetics, cleaning supplies, socks, jam, whatever – compare prices, and choose the cheapest.
In your weekly shopping, stick to what you need and only buy specials. Look at what you could save at a different supermarket or wholesalers. “Some of our clients say that simply changing supermarkets has saved them R1 000 a month,” says Stevens.
2. Save first on payday
When you get paid, save first. Put your savings away at the beginning of the month. Aiming to save what’s left over is not as efficient. And put your savings into a call account where you can reach them if you need them, but it’s not easy to access them on a whim. (You’ll also get more interest.)
3. No more takeaways
Make your own lunches instead of buying takeaways. Preparing your meals is a significant saving. Keep takeaways for emergencies only or a once-a-month treat.
4. Ditch the fancy car
Cars are depreciating assets. If you’re a couple, do you really need two? Why not sell one and buy a scooter instead, make do with just one vehicle, or exchange the most expensive vehicle for a cheaper one. Yes, we know, you love your car – but you’re going to LOVE owning your own home!
5. Compare your insurance premiums
Your car situation has change, and maybe other assets have depreciated… Give your broker a call, and shop around to see what your options are.
6. Sell unwanted stuff
Sell stuff that you no longer want or need. And while you’re on OLX and Gumtree, keep an eye out for bargains you can sell for more than you pay for them. Just be very careful in this regard – you don’t want to wipe out your savings if you get it wrong.
7. Don’t get that cellphone upgrade
You’re giving yourself two years to save your deposit, so maybe you don’t need a cellphone upgrade? In fact, when your contract renewal rolls around, why not take a lower package. It’s just for two years.
8. Get a second job
Create a second income stream by freelancing or getting another job. Get a Saturday or Sunday waiting job. You can do this! Get the money paid directly into your savings account.
9. Downgrade your current digs
You could move to a smaller rental unit for two years and pay less rent? It’s only temporary, and when you leave the smaller place, it will be to move into your own home. That’s worth the sacrifices.
10. Put any extra money into savings
Deposit any bonuses, gifts or commission straight into your savings account.
Once you’ve bought your home, your focus now is on paying off your bond as fast as possible. “Ease up on the pressure to save by all means, but keep some of those restrictions in place,” Stevens adds. “The quicker owners pay off their bond, the less they’ll be paying in interest.”