Buying a Home? A Deposit Makes All the Difference
Despite the buyer's market in the property industry at the moment, in the wake of the global economic downturn, banks are still wary of granting 100% home loans. In light of this, if you're considering buying a home, it's a good idea to start saving up for a decent deposit.
"From over a decade's experience in originating home loans, it has been proven time and again that having a decent deposit to put down on a property significantly improves your chances of having your offer accepted," says Rhys Dyer, COO at ooba, South Africa's biggest bond originator. "It also significantly improves your chances of getting your bond approved in the current economic climate." Because of the uncertainty in the property market, estate agents and sellers are always more confident about a buyer with a deposit. The buyer's chances of getting their bond approved are higher, so their offer is more appealing than a buyer whose offer is conditional on the sale of another property or raising a 100% bond."
The benefits of having a deposit are not limited to the increased likelihood of bond approval either. "While getting your bond approved is your first priority, there are many long-term benefits to having a deposit as well," says Dyer. The first of these benefits is naturally that you will have already prepared yourself for the financial commitment of repaying a bond. When transfer goes through and those bond repayments kick in, you'll already be in the habit of putting money aside every month. "It's good to get into the practice of saving because owning a home comes with maintenance and upkeep expenses," says Dyer. "Your bond repayment isn't the only expense involved in owning a new home, so financial discipline is important when you take this step."
Having a deposit naturally also decreases your monthly bond repayments. "While it is common sense that the more you pay upfront, the less you'll pay over time, few people realise quite how much they will save in interest over the term of their bond if they have a deposit," says Dyer. Using the ooba calculator, it's possible to work out that on a R1-million home, with no deposit, at an 8.5% interest rate, the monthly bond payments will be R8,678, and the total amount repaid will be R2,082,776. But with a 10% deposit on the same home, and with the same interest rate, the monthly bond payments will be R7,810, and the total repaid will be R1,874,498 - a saving of more than R100 000 (given that you've already put down R100 000 as a deposit).
As a further benefit, having the deposit can also put you in a stronger position to negotiate with your bank to decrease your interest rate. "A deposit puts you in a stronger position to negotiate on your interest rate because it gives the bank confidence in you, and because they are taking less of a risk on financing your property," says Dyer. "Even a small reduction in the interest rate can save you thousands of rand over a 20-year bond term." There's no question that saving for a deposit is the best first step to buying a home. So, even if you're only considering purchasing a home in the next few years, Dyer advises that you start putting money aside as soon as possible.