While there are many benefits to putting down a deposit on your home, in today’s tough economic climate it may be more realistic to take out a 100% bond, especially if you’re a first-time buyer who does not have easy access to a deposit.
Indeed, if you fall into this category of homebuyer, you’re not alone. “More than half of all the applications received by ooba are from buyers who have no access to a deposit,” says Kay Geldenhuys, Head of Sales Fulfilment at South Africa’s largest bond originator ooba.
100% home loans in South Africa
According to Geldenhuys, close to 80% of these applicants are being approved for finance and three out of four are successful in their bid to secure a 100% bond. The rest are required to raise a deposit, and that is generally one that is between five and 10 percent of the purchase price.
“Contrary to the widely held belief that the chances of getting 100% financing are slim, these stats prove that, when correctly represented, buyers have a very good chance of obtaining a bond without a deposit,” she says.
However, Geldenhuys emphasises the importance of using a reputable bond originator. “Banks are willing to approve 100% bonds if they can see that you have a clean credit history and can comfortably afford the monthly repayment instalments. An experienced bond originator will ensure you are correctly represented to the financing institutions so that they view your application in a favourable light.
“It’s essential that these candidates evaluate their financial situation before applying for a bond,” she adds, noting that there are, equally, many advantages to putting down a deposit.
“By providing capital upfront in the home-buying process, you will avoid paying interest on that amount of money for the duration of your loan period, which can amount to a significant saving in the long term,” she explains.
“If, for instance, you purchase a R1 million property with no deposit at a 10% interest rate, you will pay approximately R9 650 per month over 20 years. At the end of the term of the home loan, you will have paid back around R2 316 052. On the other hand, with a R100 000 deposit, the monthly repayments will be approximately R8 685, and the total repayment will be around R2 084 447. Add the deposit to this and the total comes to R2 184 447 – making the total repayments some R131 605 cheaper than buying without a deposit.
“It also stands to reason that the smaller the risk for the bank, the more negotiable it will be on your interest rate,” she adds.
To gauge the affordability of your property price, and the likely chances of obtaining bond approval, it’s advisable to prequalify with a bond originator, a free service that ooba provides prior to the start of the home-buying process.
“Once you have an indication of the deposit required, you’ll be better positioned to consider the best approach needed to obtain your financing,” Geldenhuys says.
South Africa’s leading bond originator offers a range of home loan calculators to help people looking to buy a home determine what they can afford. Click here to access ooba’s free, online prequalification tool, the ooba Bond Indicator. Then, when you’re ready, you can get prequalified or apply for a home loan with ooba.