How to get a home loan as a first-time buyer (without a deposit)

Article summary

• Banks typically apply very strict criteria when looking at home-loan applicants who have no deposit as they are considered substantially riskier.
• The usual requirements for zero-deposit borrowers may include a clean credit rating, a strong repayment history, stable employment and a standard type and location of prospective property.
• Guarantor loans are ideal for borrowers who have a consistent borrowing capacity and income, but lack the means to gather the initial deposit.

For many people, buying a home is part of the great South African dream. Yet with the high cost of living, saving for a deposit can be extremely difficult.

Indeed, if you fall into this category of homebuyer, you’re not alone. “Nearly half of all the applications received by ooba are from buyers who have no access to a deposit,” says Kay Geldenhuys, Property Finance Processing Manager at South Africa’s largest bond originator.

“Contrary to popular belief, it’s not impossible to get 100% financing. In fact, a significant 74% – or three out of four – of our applicants are successful in securing a no-deposit bond, while the rest are required to raise a relatively small deposit, generally only one that is between five and 10% of the purchase price.”

Geldenhuys explains that most people who get no-deposit loans are first-time buyers who will live in the homes they purchase. “Banks prefer these types of buyers as they usually pay their loans on time. However, because they are substantially riskier, lenders typically apply very strict criteria when looking at applicants for zero-deposit home loans.”

It is possible to get approved for a loan of 100% of the purchase price of a home if you can meet certain conditions. Here, Geldenhuys explains the usual requirements for no-deposit borrowers:

Spotless credit score

You must have a clean credit history and credit rating. South African banks do not make exceptions to this policy in cases with no-deposit loans because of the legal requirements for them to lend responsibly.

Solid repayment history

You’ll want to show that you have been paying your existing loans and debts back on time. Every credit card payment, car loan, and timely rent payment can help you convince the banks that you’re a responsible borrower.

Stable employment income

You must have a stable, ongoing job that provides an income high enough that you can afford to repay the loan. Professionals in certain occupations (e.g. accountants, lawyers, doctors) are much more likely to be approved for a home loan with no deposit because they are generally considered to be at a lower risk of losing their jobs.

Location and property type

Lenders will be more likely to grant a no-deposit loan to someone who is looking to buy a property in a typical area, like a capital city, and the property should not be “unusual” – in other words, it should be a standard house, townhouse, flat or vacant land to build on.

A guarantor on the loan

A guarantor is someone with an existing property who is legally responsible for paying back the entire loan if you cannot make the loan repayments and will also have to pay any fees, charges and interest. A parent may act as a guarantor to first-time buyers seeking help getting a home loan. The guarantor can use their property as security so long as the value of the security is great enough – in other words, the guarantor has to have a certain amount of equity in their property, which is a security against the loan in case you can’t meet or make your payment obligations under the loan contract.

Because they have established relationships with the banks and are able to negotiate the best deal on your behalf, certified bond originators, like ooba, can significantly improve your chances of getting a bond with little or no deposit.

To make the home-buying process that much easier, South Africa’s leading bond originator offers a range of home loan calculators, including those that determine bond affordability and bond repayments.

Get pre-qualified, or apply for a home loan with ooba today.