Saving for a deposit is the first key step in home ownership. Consider these handy tips on how to successfully save for a home deposit.
The prospect of buying a home in your mid 20s or early 30s can sound like an unattainable dream for many who are still paying off student loans and other forms of debt.
As a result, rather than purchasing a home, many of the younger generation are renting and putting homeownership on pause.
But according to Gerhard Kotzé, the new MD of the RealNet estate agency group, simply putting aside small amounts of cash every month can help you to own your first home sooner than you think.
“First-time buyers should aim to save a deposit equal to about 10 to 12 percent of the purchase price of the type of home they want before applying for a home loan to cover the rest,” says Kotzé.
The benefits of saving extra towards your deposit:
Kotzé advises that the benefits of saving as much as you possibly can, will eventually help to reduce the amount you have to borrow from the bank and make your monthly home loan repayments much more manageable.
“For example, if you were to buy a home priced at R750 000 with a 10% deposit, the current monthly repayment on the loan would be around R6800, but if you could up the deposit to 15%, the monthly repayment would drop to under R6400” says Kotzé.
In other instances, having a bigger deposit can also help to negotiate a lower home loan interest rate which will in turn make your monthly repayments more affordable.
Having a game plan in place:
Saving is always easier said than done, which is why it’s important to have a savings goal in place.
According to Kotzé, you need to be both determined and creative in order to reach your target amount.
It’s essential to consider effective ways to cut back on costs so that more money can be put aside to help build your home deposit.
Cutting down on your current accommodation costs can be a good place to start. If your current rental costs are 30% or more of your income, then it may be a smarter option to move into a rental home that offers cheaper accommodation.
“But remember that if you are going to move, it should not be somewhere further from work, or you may just end up spending your rent savings on higher transport costs” says Kotzé.
Alternate ways to save on a tight budget can include paying a fixed amount into your savings account at the beginning of every month, before you pay your regular bills and instalments, and then making the rest stretch to cover your variable expenses, says Kotzé.
It’s essential to also make it a habit to compare prices when out shopping, especially when purchasing your weekly or monthly essentials. Kotzé warns against the use of credit cards when shopping as it simply creates more debt.
He advises that ‘old favourites’ work just as well in an effort to save, like putting all your loose change into a money jar, taking a packed lunch to work, using public transport, selling any unwanted home goods and avoiding excessive entertaining at home.
These measures may only save a few rands at a time, but is still useful in helping you to reach your saving’s goal faster.
To conclude, Kotzé says you should not let yourself get discouraged. “Budgeting for your first home shouldn’t make you feel deprived but rather happy that you are getting closer every day to being able to give yourself something that you really want.”