Saving for your dream home can seem like an impossible task but follow these tips and you'll find that it's easier than you think.
Saving for your dream home can seem like an impossible task that will take many years to achieve, but affording your dream home is easier than you think. Linda Rall, ooba Provincial Sales Manager, discusses the essentials of saving for your dream home by sharing top tips to help stretch your rands.
Top tip one: Free up disposable income
Your monthly expenses and debt repayments should be paid on time every month to avoid paying excessive interest rates. By paying on time, you will pay off debts quicker, and your credit score won’t be affected. In addition, try paying off your credit card in full every month, rather than only paying the minimum amount. Secondly, it is important to evaluate your monthly spend based on essentials and non-essentials as this will significantly impact on your spending priority.
Top tip two: Decide what your dream home looks like now
You need to carefully consider what sort of home you want in the future, and check this against what you can afford now. If, for example, your dream home has four bedrooms, but you can only afford a two bedroom home, look for a smaller home that offers the potential to have additional rooms built on in future. Also, consider whether you want to purchase a free standing house or a sectional title unit in a complex. If safety is of great importance to you then you may want to consider living in a secured complex. This also provides access to shared facilities such as swimming pools and clubhouses, which is convenient if you don’t see yourself spending money on maintaining these types of facilities in a free standing house. You need to be guided by your affordability, which you can check upfront by obtaining a prequalification certificate from an ooba expert.
Top tip three: Spend less on your car
Home buyers often struggle to obtain their required home loan because they are paying a large monthly instalment on an expensive car. Consider downscaling and spending less on your car in order to improve your chances for home finance. It is also wise to pay off a vehicle nearing the end of its repayment term if you have a lump sum to do so as the cancellation of that monthly repayment will strengthen your chances to qualify for home finance. You may also consider a re-finance option on your existing instalment sale agreement which will lower your monthly car repayment and therefore increase your net surplus income to improve your affordability and qualify you for increased home finance.
Top tip four: Skip the holiday; save for a house deposit instead
It will be worth your while to skip that holiday and put money away towards a property purchase. Rather than going on holiday, allow yourself a few treats per month and curb the rest of your entertainment spend to save a little extra cash for a deposit as this can place you in a better position for being pre-approved for a bond.
Banks offer up to 100% loans, however being able to pay a deposit improves the chances of your loan being approved and also attracts a better interest rate. Banks will be more lenient with credit if a buyer is able to pay approximately 10% of the purchase price. For instance, if a home is sold for R850 000 then a deposit of R85 000 will represent 10% of the purchase price. Consider the example below:
Gross combined earnings R25 000 pm
Less salary deductions (PAYE / UIF) R4 000
Net Salary earnings R21 000
Less debt repayments (vehicle fin etc.) R6 500
Less monthly living expense (food, rent etc.) R8 500
Net surplus R7 000
Saving the full amount R7 000
If R7000 is deposited into an investment account that pays 4.5% interest calculated per annum but accumulated monthly it will take 12 months to achieve R85 000, however, should you decide to only save R 6000 per month, it will take 1 year and 4 months to get to your required deposit amount.
Top tip five: Consider your saving options
Investing your money with a bank is a secure method of saving which carries little to no risk to the invested capital, however the interest rates are rather moderate in comparison to other saving methods. Shares and other equity-linked investment plans may offer you better returns but you usually need to invest over a much longer period of time to see a reasonable return on your investment. When looking to save money for a house deposit either through a bank or with an investment plan, seek financial advice to ensure that you select an option that will best suit your individual needs.