Save R100K in 2 years for a home loan deposit – here’s how

Climbing interest rates are putting the dream of owning property out of reach for many people, not only because their affordability levels are under pressure but also because it is even harder to save for a decent deposit

SOME banks are offering 100% bonds to qualifying buyers but, with their risk going up alongside rising levels of financial stress, it helps to have a deposit.

Furthermore, having the down payment will decrease your monthly bond repayments.

If you do dream about buying your own home, you might want to take some extra time to save for a deposit, says Paul Stevens, the chief executive of Just Property.

“Deferring the dream for a year or two in order to save towards a larger deposit will decrease the amount you have to borrow and the amount you pay in the long term.”

Explaining the financial intricacies of a deposit, he says it is usually 10% of the purchase price. Prospective firsttime homebuyers aiming to acquire a property valued at R1 million, without a 100% bond, would typically require a R100 000 deposit.

Putting down the amount as a deposit would take your monthly repayment to R8 670, as opposed to R10 837 without it.

“It can be done, and just imagine, over 20 years, how much you’d be saving.”

But how does one save R100 000 in two years? Well, Stevens says, you’d be “astonished” at how quickly the savings from temporary adjustments to lifestyle and spending habits can mount.

“And what is two years of tightening your belt if it helps you enter the property market and significantly decreases your long-term bond repayments?”

To add R100 000 to your deposit, you’d be aiming to save R50 000 a year over the next two years. That would require a monthly saving of approximately R4 200.

He offers 10 changes to help you start saving for a larger deposit:

1. Investigate and cut expenses

Items like cosmetics, cleaning supplies and grocery basics are good options. Compare prices on the shelves and opt for the cheapest alternative. Research potential savings at various wholesalers and try to find out what each supermarket has identified as its products that are sold at a loss to attract customers.

You may want to buy meat and dairy from one shop, name-brand cleaning products from another and fruit from yet another.

2. Shopping self-control

When shopping, purchase only necessities and focus on special offers. Better still, use online shopping so you’re not tempted in the aisles. You can identify a few luxuries to indulge in now and then.

3. Save at the beginning of the month

Put that R4 200 away at the beginning of each month rather than attempting to save what remains after expenses. Bank your savings in a 72-day call account that offers a higher interest rate as well as accessibility while discouraging impulsive withdrawals.

4. Cook at home

Aim for homemade dishes instead of ready-to-cook or takeaway meals. This can lead to significant savings. Cook in bulk one day a week, eat one portion that night and refrigerate the remainder. That way, you will also cut down on electricity.

5. Relook at your vehicle usage

Evaluate the need for two vehicles if you’re part of a couple. Consider selling one vehicle and opting for a scooter or downsizing to a single vehicle, especially if one or both of you work from home. Although this may seem a significant sacrifice, the reward of owning a home in just two years will make it worthwhile.

6. Update insurance policies

Is your insurance policy, regarding the value of assets such as vehicles and computers, current? Find out if your premiums can be lowered.

7. Reconsider phone upgrades

Sticking to your current phone model and downgrading to the cheapest contract can save hundreds of rand a month. Could you join a cheaper gym or cancel your membership and take up running for the next two years instead?

8. Earn extra income

Could you start a side hustle, tutor over the weekends or wait tables one or two nights a week? Think about what else you could do (or sell) to bring in extra money. Pay it straight into the savings account.

9. Downsize

If you rent, consider temporarily downsizing to a smaller rental unit. This will reduce rental expenses while you save for your deposit. Keep in mind that the arrangement is temporary, and the goal is to move into your own home.

10. Be frugal

If you receive a bonus, monetary gift or commission, keep 5% to spoil yourself and pay the rest into your savings account. Using a portion to take advantage of special bulk-buy deals is also a good option.

BONUS ADVICE

Francois du Toit, the director at Tyson Properties Johannesburg, advises young aspiring homeowners to start saving early for their bond deposit and transfer fees. They should also start settling any debt they have, big or small.

“Start with the smallest and work your way through; every time you settle a small amount outstanding, move to the next one and increase the payment. A good, clean credit record in today’s day and age becomes crucial for any first-time buyer.”

Echoing this, Richard Gray, the chief executive of Harcourts SA, says a good credit history is crucial for securing favourable home loan lending terms.

“Establish good credit habits by paying your bills on time, keeping credit card balances low and avoiding excessive debt.”

When saving for a deposit, you should create a budget and set aside a portion of your income specifically for saving.

“Explore down payment assistance programmes, consider alternative funding sources, and be disciplined in your savings efforts.”

You should try getting a feel for your home loan affordability at least one year before you plan to buy, says David Jacobs, the regional sales manager for the Rawson Property Group.

“Before you start investigating the property market, get a ballpark estimate of what you might be able to afford. That way, you can narrow your research to properties within your price range. The quickest way to get a budget estimate is to use an online affordability calculator, but visiting a bond originator will give you a more accurate idea of your prospects.”