Buying a house requires proper planning, saving

2011-01-22 12:54

To financially prepare for purchasing a property, you should ideally start saving long before you consider approaching your bank for a mortgage bond.

Although some banks do offer 100% loans, this is not guaranteed. It depends on the bank’s approach to loans.

Also remember that there are other upfront costs that go into buying a home. You have to pay a deposit for utilities such as water, electricity and rates. If your property price is more than R500 000 it will attract transfer duty costs. Your purchasing costs can be as high as 10% of the purchase price. Rather than taking out an even larger loan, your deposit could cover these additional costs.

A deposit also shows the bank that you are financially responsible (you’ve saved) and you’re serious about buying a home (you’ve set a goal). This makes it more likely that you will qualify for a homeloan.

Starting a savings plan
The tricky part is getting the cash together. If, for example, you buy a house in the affordable property segment for R450 000, you may be required to put down a deposit that is 15% of the value of the property. That’s R67 500. No small amount!

You need to put a plan in place to start saving a little bit extra each month. This will also help you to get used to living on less each month because usually when you buy your home, the homeloan repayments are higher than what you are paying in rent. As a home owner you will also have additional expenses like rates and ­maintenance.

By saving the difference between your current rent and what you will be paying as a home owner (the mortgage repayments, rates, maintenance) you are able to build up a deposit and adjust your monthly budget to that of a homeowner. If you are able to sustain this saving over a period of time, then you know that you will be able to afford your new home.

If you are saving with a spouse or partner, you can share the saving. If you receive a bonus or an increase, put more money into your savings. If you’re working towards a goal, particularly one that will enable you to buy your own home, you’ll be surprised at how motivated you’ll be – saving won’t seem like a sacrifice at all.

It is important that you also save the money in a high interest bearing ­account so that your money is working for you. If you are saving over a ­two-year period, stick to cash-type ­savings.

Capitec has an excellent fixed deposit savings account that you are able to add to each month while still benefiting from a fixed deposit interest rate.

To give you an example of the benefit of interest, if you save R2 000 a month, after two years, you would have saved R48 000. If you invested this in a bank account that provided a 6% return, that amount would be R50 860 – the interest earned has given you an extra month of savings for free.

Never borrow for your deposit
Marius Marais, chief executive of FNB ­Housing Finance, says that some banks agree to 100% loans with the aim of preventing clients from obtaining a 10% or 20% deposit from a ­micro-lender, for example. “The principle of saving for a deposit is good, and if you are disciplined and manage to save, that’s great, but we don’t want our clients to take out a loan just to have a deposit ready,” says Marais.

But if your bank insists on a deposit, avoid the temptation to borrow to meet that deposit. First of all, your monthly expenses will immediately shoot up as you’ll have to pay off the loan as well as your bond. Secondly, your bank will look at your existing financial commitments in order to assess your affordability, so you may get a smaller bond than you would like, because you’re paying off another loan.

Worse, if you approach a ­micro-lender, you may be liable for heavy interest on the loan.

Not all micro-lenders are registered with the Micro-Finance Regulatory Council, and some are ­unscrupulous.

Consumers have been taken in by dishonest micro-lenders, so be very cautious and refrain from borrowing in order to secure a loan.

If you are unable to get a homeloan without a deposit, the bank is saying you can’t afford it yet.

Rather keep saving.

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