With interest rates expected to increase over the next two years, banks are going to become more cautious about who they lend money to, particularly for home loans and vehicle finance.
Buyers who have a deposit in hand will stand a better chance of getting a loan. Work out what you can afford to borrow based on your income and expenses, and then calculate how much money you will need to save for a deposit.
For example, if you want to buy a house for R800?000, your 10% saving goal for a deposit is R80?000. Let’s assume you are currently renting or boarding at a cost of R5?000 a month.
Work out what your monthly instalment will be on the home loan. This can be easily done using calculators on different websites, such as ooba.co.za.
At an interest rate of prime plus two (11%) and taking into account a 10% deposit, your monthly repayment will be R7?432.
A good strategy is to save the difference between your current rent and the costs you will expect as a homeowner. But this is not just the difference between your expected home loan repayment and the rent you currently pay.
You need to take into account the additional costs you will pay as a homeowner: insurance, rates and levies, and maintenance. Saving this money towards a deposit before you buy a house will help you prepare your budget for your monthly costs as a homeowner.
Jan Kleynhans, the chief executive of asset finance at First National Bank, says if you budget carefully from the start, you are less likely to run the risk of going into arrears on your home loan.
Where to save
If you will be saving over a period of one to two years, the most appropriate savings vehicle would be a high-interest-earning savings account or a money market fund.
Money market funds usually offer higher interest rates than a traditional bank savings account. But you usually require a minimum opening deposit. Advantages include easy access to your funds (one to two days at most) and you can withdraw your money at any time without incurring penalties.
So if you find the “perfect” house six months earlier than you planned, you can still access your savings for a deposit.
The cost of buying a home
Leanne Rall, a provincial sales manager at ooba in KwaZulu-Natal, says you need to take into account the following costs when buying a home:
»?Bond registration and transfer costs. This will probably be your biggest cost upfront. For example, on a R1?million home loan, the bond registration cost estimate would be R19?759 and the transfer cost estimate would be R28?875;
»?General repairs and maintenance;
»?Getting connected. You will have to set up your water, electricity, phone and internet connections. You may be required to put down a deposit for your water, electricity and phone connection. Find out if you can transfer the accounts from the previous homeowner at a lower cost;
»?Homeowners insurance; and