Making the Leap: First-Time Homebuyers CAN Save for a Deposit
Saving for the deposit is a challenge. But as the great Nelson Mandela once said, “It only seems impossible till it’s done.” Here are some tips on how you can reach this milestone towards owning your dream home.
“Buying a home can be a daunting prospect if you’re a first time home buyer. The numbers are intimidating, especially if you’re only at the start of your journey. A 100% bond might look like the best (and easiest) way to go, but that’s not always the case,” says Paul Stevens, CEO of Just Property.
Although many people consider accumulating a substantial deposit for a home loan an impossibility, there are a few small but significant things you can do to help you take your first steps on your property ownership journey and help you make a noticeable difference to your future bond repayments.
How it works
Stevens uses the example of a R200 000 deposit on a R2-million bond.
“If you break it down, you’ll see that over four years you’ll be aiming to set aside R50 000 per year. Let’s leave out the bonus of the interest you’ll receive, and round it off to R4 500 a month, as some months you may come in a bit above, and some months a bit below your target.
“Finding an extra R4 500 sounds hard right? You’ve still got to cover your costs and pay rent. The trick is to keep reminding yourself that it’s just for two years. It’s a short term sacrifice for a long-term reward.”
10 tips from Paul Stevens to help you do it:
- Put your savings first.
Every month, before doing anything else, transfer that R4 500 (or whatever amount you’ve decided on) out of your transactional account when your salary comes in. A call account will give you access to your funds if you need them, but you won’t be able to spend the cash on a whim. These accounts also typically offer a better interest rate.
- Choose your luxuries wisely.
Spoil yourself with one or two “treat” purchases that are not overly expensive, and keep those on your shopping list. Apps such as Troli, Pryce and Price Check all allow you to compare prices from major retailers and find the best deals. In your weekly shopping, stick to what you need and only buy the specials. For some people, online shopping helps prevent impulse buying which can also make a substantial difference. “Some of our clients say that simply changing supermarkets has saved them R1 000 a month,” says Stevens.
- Prepare your own meals and work/school lunches.
Fast food, ready meals and dining out can cost more than you realise. By doing your own cooking, you are going to slash your food budget and may even be able to enjoy a takeaway or night out as a monthly treat or on special occasions.
- Relook your transport.
Cars are depreciating assets and come with associated costs like fuel and maintenance. Could you sell a car and buy a scooter instead? If you’re part of a couple, consider making do with just one vehicle, or trade in the most expensive vehicle for a cheaper model?
- Look for hidden costs.
When were your insurance policies updated? Your assets may have depreciated or you may have moved to a home that is more secure. Check with your broker and shop around to compare your options. Take the time to examine your bank statements. Are there any small amounts being deducted monthly that you’re not sure about? You may have subscription services or forgotten debit orders in place!
- Do a home stocktake.
There is a marketplace for second-hand goods and you may be able to make some money selling your preloved items. Just be careful as scammers are prolific, so use trusted platforms, and don’t send goods without confirming payment (ideally in cash).
- Hold off on the upgrades and subscriptions.
Upgrading mobile phone contracts can impact your bottom line. Unless it’s absolutely necessary, rather replace your current phone’s battery and hold onto it for a while longer. Even your subscription services for entertainment such as Netflix or DSTV may be worth suspending or downgrading in the short term.
- Use your skills.
A side hustle, freelancing or helping out a friend in their business may all give you a second or even third income stream. Get this money paid directly into your savings account.
- Consider downsizing.
Once you’ve cleared your junk, think about moving to a smaller rental unit or garden cottage for a few years. It’s only temporary and, by saving on rent now, you may be able to afford your own home sooner. That’s worth the short-term inconvenience.
- Agree to save all bonuses, gifts or unexpected commission,
and instead of planning a long and costly holiday, rather spend a few days camping or exploring destinations that are off the beaten path and often less expensive.
Once you’ve saved your deposit, you’re ready for the next exciting steps. You can check your credit rating, find out your buying power, and get pre-qualified for your bond. Speak to an experienced agent to discuss your needs, identify potential pitfalls, and advise you on applying for finance. Once you’ve secured a bond, scour the property portals and work with your property professional to find the right home (remember to stick to your budget and don’t fall in love with “your second home” before you’ve bought your first. This is your property journey and that bigger home is in your future, but for now keep your eye on the number you decided on initially and don’t budge.
Once you’ve bought your home, your focus is to pay off your bond as fast as possible. “Ease up on the pressure to save, but keep some of your restrictions in place,” Stevens suggests. “The quicker you pay off your bond, the less interest you’ll pay.” He also notes that if you buy property that offers letting opportunities such as a flatlet, you may be able to cut your payback substantially.
For parents, Stevens has a final piece of advice: “The best gift you can give your kids is to set them on the road to property ownership early. When they’re 15, sit them down and show them how much money they may lose to paying rent in future. Help them find a weekend job, and get that salary paid into a 32-day call account.
“Work together to investigate different investment vehicles, show them the magic of compound interest, and encourage them to start investing any money they receive while they have no overheads. Let them withdraw a little of the money for something fun for significant celebrations, but stick with the principle that monetary gifts go into the investment account.
“By the time they complete their tertiary education, at 22 or 23, on the day they get their first job, help them apply for their first bond. The greatest gift you can give them is to set them on their own property journey as soon as possible.”