- A deposit can put you in a strong position to get approved for a home loan, with a better interest rate.
- Useful budgeting tips include rooting out hidden items that add to your budget, such as takeaways and lattes; and eliminating credit card debt.
- Once you’re ready to apply for a home loan, employing a home loan comparison service like ooba home loans can further save you money, as they will shop around for the best deal.
Having a budget and sticking to it is not easy, especially with the upward pressure of inflation. However, by making the necessary financial adjustments, those wishing to purchase a property this year can improve their chances of qualifying for a home loan, with a better interest rate, by saving up for a deposit, says Marlyn Pillay, a consultant at ooba home loans, South Africa’s largest home loan comparison service.
Why save for a deposit?
Although we are currently in a buyer’s market, which makes banks more open to granting 100% home loans (home loans that don’t require a deposit); one should still aim to put down a deposit if possible, as it reassures the seller that the buyer is serious in his or her intention to purchase, while also mitigating the perceived risk of funding the purchase in the eyes of the bank. You are also more likely to get a more favourable interest rate from the bank.
As such, a deposit significantly improves your chances of getting home loan approval from the bank, with a better rate, than if you did not put down a deposit. The required deposit amount can range from a few thousand rand to 20% of the property purchase price, depending on the seller and estate agent. But most agreements call for a deposit of around 10% of the purchase price. Of course, the bigger your deposit, the better.
Saving for a deposit
Below, Marlyn Pillay discusses some of the best budgeting tips to help you save for a deposit.
Tip #1: Draw up a monthly budget
Drawing up a budget every month may seem like a chore, but it’s a worthwhile exercise, asserts Pillay. “Not only that, you also need to diligently track your projected spending against your actual spending,” she says. Root out those hidden items that creep into your budget – for instance, take-aways on the weekend or lattes on the way to work. Pillay recommends shopping once a week with a list to avoid over-buying and impulsive purchases.
Tip #2: Get rid of credit card debt
Credit card debt can be crippling and it’s a difficult cycle to break. “Overdrafts are a temporary solution to a cash flow problem,” Pillay says. “Try to identify why you’re going into overdraft every month and then avoid whatever spending is unnecessary.”
She suggests speaking to your bank about lowering your overdraft limit. “It’s also a good idea to reduce your spending on retail credit cards, no matter how tempting the loyalty points are,” she says.
Tip #3: Shop around for the best deals
Whether it’s your bank charges, your medical aid or your cellphone contract, there are a number of ways to reduce your recurring monthly expenses. “Many people assume that these rates are static, but a phone call to your insurance company to say you’re unhappy with your premium can quickly change that,” she says. A good tip is to have a cellphone contract with an airtime and data limit to avoid overspending.
Tip #4: Find out your credit score
Your credit score is easily obtainable from a credit bureau, and a good credit score will improve your chances of qualifying for a home loan. “Banks place a great emphasis on this report,” comments Pillay, “which is why you should ask for a copy and make sure that all the information is correct.”
Close any accounts that aren’t being used and reduce limits that have high available balances. “If any accounts reflect slow payments, arrears or legal status, attend to it immediately,” urges Pillay.
When you’re ready to put your deposit to good use, bear in mind that ooba home loans can further improve your chances of securing home loan approval by shopping around for the best deal on your behalf. They also offer a range of tools that make the home buying process easier. Start with their home loan calculators; then use their free, online prequalification tool, the ooba Bond Indicator, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.