How to save up for a house in just two years

Article summary

• The prospect of homeownership is worth the sacrifices you’ll have to make over the short-term as homeownership provides a sense of security and a powerful asset.
• First, determine how much you can afford using the tools we provide, then budget accordingly.
• Pretend that the money you’re setting aside for the home purchase is money you don’t have; for example by having it automatically transferred to a separate account every month.
• Use the time you spend saving up to improve your credit record.

The dream of homeownership may seem unachievable when you’re just scraping by. But it’s not as unrealistic as you may think.

For example, say you’re paying rent on an apartment. That rent could instead be put towards monthly repayments on a home loan, helping you acquire a powerful asset.

Making whatever sacrifices you need to make is worth it for the chance to obtain homeownership, a source of financial security that will stand you in good stead for the foreseeable future.

We want to help you achieve the dream of home ownership, so we provide advice on how you can save up for a home in a shorter space of time than you may have envisioned.

Note: Our Bond Calculator can help you determine what you can afford on a home loan, so you have a target in mind when planning a home purchase in the future.

First step: Determine what you can afford

You need to be realistic about what you can afford. Your expenses go above and beyond the purchase price of the home. For example, you’ll also have to pay transfer fees, rates and levies.

Thankfully some tools can help you calculate the costs of buying a home, allowing you to plan your budget accordingly.

We offer several tools, such as:

• Bond Calculator: The essential tool that will allow you to determine what bond you qualify for based on your monthly income.
• Repayment Calculator: This helps you determine what you must pay on monthly repayments.
• Transfer Cost Calculator: Determine what you will pay for bond registration, transfer costs, and transfer duty. These are additional upfront costs that go with the purchase of a home.

Additional costs:

As a rule, you should set aside 10% of the property purchase price for additional costs such as bond registration and transfer costs. So you’ll need to incorporate this into your budget.

Our most powerful tool: Prequalification

Using our free, online tool, the Bond Indicator, you can determine what you can afford on your home loan.

The tool assesses your credit record, which is the most important factor the bank will take into account when assessing your home loan application.

Planning your budget accordingly:

Now that you have an idea of what home loan you can afford, it’s time to determine how much of your monthly income you’ll be able to set aside for the monthly repayments.

Depending on your credit record, the bank may be willing to lend you more than you can afford. Don’t fall into this trap. If you’re worried about affording monthly repayments, a good rule of thumb is to subtract 30% from the amount that the bank is willing to lend you and make that price your target.

Saving up for the deposit

The deposit usually amounts to 10% to 20% of the property purchase price. A deposit will improve your chances of home loan approval and reduce your interest rates and monthly repayments.

Is it possible to eliminate the need for a deposit?

For many young homebuyers, the deposit is the main barrier to entry. Thankfully there is the option to get a 100% home loan, which removes the need for a deposit.

The current climate in South Africa is conducive to applying for a 100% home loan. Supply is currently outstripping demand. This means banks are competing to grant home loans and are more likely to approve such deals.

Tip #1: Create an automatic transfer into a separate account

One of the best ways to save up for a home purchase is to pretend that the money you’re setting aside is money you don’t have.

In other words, transfer the portion of your income you want to set aside to a separate account every month so that you don’t have it available to spend on other things. You can set up an automatic transfer so you can’t give in to the temptation to keep the money in your main account.

Tip #2: Take advantage of windfalls

A windfall is a sudden acquirement of wealth that you hadn’t accounted for. For example, a gift from family members, an inheritance, or a Christmas bonus.

It’s tempting to spend this on a vacation, or a new PC. But setting such funds aside for the home purchase pays off in the long term.

Tip #3: Take advantage of programs aimed at homebuyers

For example, First Home Finance (formerly known as FLISP) is a government program aimed at first-time homebuyers with a low income.

If your income ranges from R3 501 to R22 000 per month, you could qualify for a government subsidy ranging from R38 878 to R169 264.

This gives you a headstart on acquiring a home. Imagine how these funds could help you? For example, you could use the funds as a deposit, improving your chances of home loan approval and reducing your monthly repayments.

Tip #4: Improve your credit record

Two years is plenty of time for measures that will improve your credit record.

For example, you could shop on credit and ensure the accounts you open up are always paid off. Keeping yourself free of debt will also send a positive sign to the banks.

Shop around for the best deal

When the time comes to finally apply for a home loan, shopping around for the best deal makes your budgeting even more effective by helping you obtain a home loan with lower monthly repayments; perhaps even lower than you budgeted for.

ooba Home Loans submits your home loan application to multiple banks so you can compare the deals they offer. Banks have different lending criteria and some will offer more favourable interest rates and monthly repayments.

So when you’re ready, you can apply for a home loan with ooba Home Loans.