Deposits explained

Saving for a house? With the average home costing R1 million, financial preparation is a challenge. Very few people, particularly first-time buyers, have a lot of money spare for a deposit. But, are home loan deposits actually as important as they seem?

Most people are in their mid-to-late 40s before they buy their first homes. What’s the easiest way to save for a home, and how can you find affordable home loans to turn your dream into reality?

Here we look at deposits, and whether or not they’re the key to owning a home.

In This Guide:

What exactly is a deposit?

When you compare home loans, you'll find that you have a few options.

Some lenders will offer 100% loans, giving you the full amount of money that you need to buy your chosen home. Many will ask for a deposit, or allow you to pay it voluntarily.

A deposit is a payment for your chosen home, that covers a portion of its overall cost. Usually, people aim to pay between 5%-15% as an upfront deposit, using a loan to pay for the rest of the value of the property.

The loan will need to be paid off. The deposit reduces the amount that you borrow, and the amount that you need to return to the bank over the coming years.

Is a 100% home loan a better alternative?

With a 100% loan, there's no need to save money in advance. Instead, you'll get a home loan that covers the full value of the property. This can be a tempting offer. But, watch out:

  • By not putting down a deposit, you'll increase the amount that you borrow and need to pay back.
  • 100% loans are usually only available to people with a great credit rating.
  • You won't find as many affordable home loans for 100% of the value. Lenders usually charge much higher interest rates, with no proof that you have the ability to save up on your own. Most 100% loans have very high monthly repayments that you may not want to commit to. Essentially, you'll be paying much more for exactly the same house.

Saving a deposit means that you're more likely to get your home loan application approved, and should pay a lot less over the full loan term.

Do most people save for a deposit?

Roughly 50% of home loan applications are for 100% loans. The other 50% of applicants have saved some form of deposit.

Banks usually ask for a 10%-20% deposit, but if that feels unachievable then don't just give up. It's better to save 5% than nothing at all, to access affordable home loans.

By saving less than R5000 a month, you could have a deposit for a house in less than two years from today.

How should you save for a deposit?

If you start early, the process will be less painful.

Most people need to save around R100,000 for a 10% deposit.

If you start early, you can save R10,000 per year fairly comfortably from the moment that you enter the world of work. You'd still have a 10% deposit long before the average age of first home purchases.

If you wait longer, you'll have to save more quickly to be at the same point. The quicker you need to save for your deposit, the more money you'll set aside each month. You might barely notice less than R1000 being taken from your monthly income, but you'll definitely notice if you're putting a lot more aside!

Small, regular deposits into savings accounts will be far less painful. If you need to put more money aside, you'll probably have to make sacrifices that will have an impact on your lifestyle. Those sacrifices might be difficult to make, but could be worth it for the dream of homeownership.

You may have many other financial commitments, from the costs of running a car to existing debts and study loans. Here area few tips to help you save for your house deposit:

  • Make food and drinks at home, rather than buying lunch on the go. This small change can make a big difference to your bank balance.
  • Consider using public transport and avoiding car ownership for a year or two, if it's a practical option.
  • Take on an extra part-time job, perhaps at the weekend. This won't be easy, but could provide a big financial boost for a relatively short-term commitment.
  • Sell any belongings that you're not using. You can make money selling your stuff, as well as reducing the amount that you'll need to pack when you finally get around to moving house.
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