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South Africa home loans: How to finance your first home

First-time home buyers have a range of options available that make funding a home purchase a realistic option, rather than a distant dream.

Home Loans in South Africa

Article summary

  • A home loan is when a lender (usually a bank) funds a property purchase on your behalf, so you don’t have to pay the full value of the home loan upfront.
  • First-time home buyers have options that make home loan approval more likely, such as the 100% home loan, which is a home loan that does not require a deposit on the purchase.
  • There are also government programmes that subsidise the home purchase of households with low to moderate income.

A home is a significant investment, leading many to wrongly assume that owning a home is a distant dream. But if you have yet to take your first step onto the property market, know that there are a range of options available to you for making home ownership a reality.

The home loan: Your best option for funding a home purchase

The first thing you need to understand is the purpose of the home loan. Rather than pay the full value of a property upfront; you can get a lender, usually a bank, to finance the property purchase for you. The loan they provide you with to fund the property is referred to as a home loan.

You’ll pay them back the value of the home loan in instalments over a set period of time. The bank retains possession of the title deed for the property until you have fully paid back the home loan.

As well as paying back the home loan, you’ll also have to pay interest on the loan. The home loan interest rate determines how much you’ll have to pay each month in addition to the home loan monthly repayment.

Home loans provide the source of funds you need to purchase a home, making the securing of a home loan a critical part of the home buying process.

Improving your chances of acquiring a home loan

You may be concerned about your prospects of actually acquiring a home loan, but there are options specifically tailored to first-time home buyers.

The 100% home loan

A home purchase usually requires an up-front deposit of 10% of the property price. Of course, younger home buyers are less likely to be able to scrape together funds for a deposit.

Many lenders, eager to provide younger home buyers with a motivation to apply, are offering the 100% home loan; a home loan that does not require a deposit on the purchase.

While a 100% home loan may result in a higher interest rate, it removes the need for a sizable upfront payment, allowing you to pay for the home solely through monthly home loan repayments.

More and more banks are providing 100% home loans, as supply currently outstrips demand and 100% home loans are necessary to attract first-time home buyers and boost the market.

Getting a guarantor

If you find that you are unlikely to secure a home loan based on your own income, you can approach a family member to act as a guarantor. Not all banks accept the offer of surety by another party, but for those who do, the person signing surety must qualify for the home loan in their own right, and should have a direct interest in the property, like a child living on the premises.

Using a home loan comparison service

Your best chance for acquiring a home loan is to apply to multiple lenders at once. Each lender has different lending criteria; some may be more likely than others to grant you a home loan, and some may even offer a better home loan package than others, with lower interest rates.

So consider using the services of a home loan comparison service like ooba Home Loans, who can submit your application to up to nine banks, providing you with a range of quotes to compare. They also provide a free, online prequalification service through their Bond Indicator, which will give you an idea of what you can afford.

Government programmes aimed at first-time homebuyers

In addition to first-timer-friendly home loan options like the 100% home loan, there are government programmes that aim to assist first-time buyers, such as FLISP, a government programme that grants a subsidy to first-time homebuyers earning between R3 501 and R22 000 a month.

In order to qualify, you must:

  • have a household income that falls between R3,501 and R22,000 per month.
  • be a South African citizen over the age of 18.
  • be either married, cohabiting, or single with at least one dependent.
  • not have benefited from a previous government housing programme or subsidy.
  • already have a home loan approved by the bank.

Provided you meet these criteria, the government will grant you a subsidy dependent on the amount of money your household earns (the higher your earnings are above the R3 501 threshold, the lower the subsidy, with the maximum being R121 626 for earnings of R3 501 to R3 700, and the minimum being R27 960 for earnings of R21 801 to R22 000.

Considering taking your first step onto the property market?

With such options available for funding, home ownership is not such a distant dream after all. If you’re considering taking the plunge, bear in mind that ooba Home Loans offers a range of tools that make the home-buying process easier. Start with their Bond Calculator, then use the ooba Home Loans Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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Simply The Best

Ooba home loans services are simply the best. My Consultant Bianca Dancer was so hands on and helpful from the get go. She guided me through the entire process and put me at ease being a first time buyer. I highly recommend their services.

Tia J

Excellent Service

Jay Govender and Maleshini Reddy from OOBA provided outstanding assistance and guidance in securing our home loan. Response times were excellent and they were professional and friendly.

Brice G

Bond Application

Estelle Vorster was really helpful in securing the best deal for my home loan, she not only negotiated a lower interest rate she went as far as securing 50% discount on the transfer costs.

Butana M