There are several benefits for homebuyers who can put down a deposit when they purchase a property, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “Not only are prospective buyers more likely to be approved for finance, but they will also obtain a better interest rate, which will save them a considerable amount of money over the term of the bond.”
He adds that putting down a deposit, even if it is not a large amount, can positively impact on a potential buyer’s home loan success as it shows intent and demonstrates the ability to save. Banks see those who provide a deposit as far less of a risk. “Banks typically ask for deposits of between 10% and 30% of the asking price of the property; however there is actually no right amount for a deposit. A deposit of 5% of the asking price is far better than none at all,” says Goslett. “Depositing money after registration will bring down the capital and reduce the interest charged on the bond, but it will be far more advantagous to make a deposit upfront.”
Another important aspect to keep in mind is that there are other costs associated with purchasing a property that will need to be paid. “Deposits are not the only thing that prospective buyers should prepare for. They will need to have money set aside for the transfer duty, registration and initiation fees, not to mention attorney fees. Having a savings plan in place will help buyers to achieve their homeownership goals and put them in a good financial positon,” says Goslett.
He notes that while saving enough money may seem impossible at times, planning and discipline can make it happen and owning a home is worth the effort. Goslett provides a few budgeting tips that prospective homebuyers can use to assist them in savings for a deposit and other home related costs:
Keep track of every rand
To know where to cut back means knowing where every rand is spent. Prospective buyers need to keep track of everything that they purchase over the course of each month. “It is important to categorise money into subsections such as food, entertainment and bills. This way it will be easier to track where the money is being spent and what areas can be reined in,” advises Goslett.
Want or need
With the records of the monthly expenditures, a potential buyer can further break down their purchases into wants and needs. Using this list will enable them to determine where spending can realistically be cut. This doesn’t mean that wants should be completely cut out, but perhaps reduced and managed more effectively.
Set aside funds
Open a separate savings account for the deposit and home costs. Goslett says that this makes it easier to track how much is in savings and how close the potential buyer is to reaching their goal. Having the money blocked off in a separate account will also help alleviate the temptation to spend it.
Save automatically
Ideally the best way to save is to have a debit order set up, so that a fixed amount is taken off your salary and placed into savings without you having to do anything. “A potential buyer won’t miss money that they don’t see in the first place. Having a debit order set up also takes a lot of the discipline factor out of the picture,” says Goslett.
Seek professional assistance
Once there is a reasonably substantial bit of money saved, talk to a financial professional about other places you might invest it to get a bigger return than you would by keeping it in your savings account.
“For many, a property will be the largest asset they will own, so the more it can work for them and help create wealth, the better. This starts as early as when considering buying a property and saving for a deposit,” Goslett concludes.
