Saving up a deposit for your first property brings great financial rewards.

Over the last couple of years, the banks’ lending criteria have become increasingly stringent, and in particular, deposit requirements have remained high. Some banks have adopted policies of only awarding bonds at a 70% loan to value. That means a deposit of R300 000 required on the purchase of a R1m property, a steep requirement for most prospective homeowners. More recently banks have changed these policies and have become more competitive.

However, the difficulty in obtaining a 100% bond is not the only reason why it is imperative to save up a deposit for a property purchase. Even if you do obtain a 100% bond, you will still need additional funds to cover the many other costs related to buying a property, such as the transfer duties and numerous fees that add up to significant amounts.

Beyond this, however, there are substantial financial benefits to be realised over the longer term, if you can put down a deposit. The bigger the deposit you can make, the less money you have to lend from the bank at high interest rates, and the less interest you will have to pay the bank over the next 20 years. Furthermore, homeowners who contribute from their own pocket to finance a property are considered a lower risk of default to the bank, which means the bank can offer a lower interest rate on the home loan. Even a 1% reduction in the interest rate on your home loan will save thousands of rands over the term of the bond. These savings, in many cases, add up to far more than the deposit amount.

A deposit will also ensure that the monthly repayments on the home loan are lower, which improves your affordability score and allows you to apply for a higher bond amount than you could if you had no deposit.

So when should you start saving for your first property?

From the day you receive your first salary cheque. The sooner you start the better and the reason for this is what Albert Einstein called the eighth wonder of the world: compound interest. While it simply refers to earning interest on interest already earned, the snowball effect compound interest creates in exponentially growing even small investment, given time, is truly a wonder.

For example, if you save just R100 a month over 40 years with a 10% escalation, you will accumulate more than R2m. If you save R1 000 a month – ten times more – over 20 years – half the time – with the same 10% escalation, you will accumulate far less: just over R1.5m.

This is the power of compound interest – growing your money exponentially faster the longer it is allowed to work. As such, the youth have a massive advantage in terms of building wealth, because they have more time to allow the wonder of coumpound interest to work for them. It is unfortunate that so few young people realise the power they hold in their hands to secure their financial future, by saving even the smallest amount every month, and allowing compound interest to work for them.

The sooner you start saving, the bigger the deposit you will be able to bring to the table when negotiating a home loan, and the more you will benefit financially from the savings in the interest payable over the life of the bond, the lower interest rate you can obtain, and the higher value property you can afford. 

However, even if you missed the opportunity to start saving when you received your first salary cheque, it is never too late to start. Start saving right now, and don’t let another month go by in which compound interest could have been working for you! – Adrian Goslett* – 18 August 2010

By choosing Mortgage Plus for a loan, you will get that continual service to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

INTRODUCTION:
A first-time home buyer is someone, looking to purchase their first property or home. But before you’re able to purchase your first home you’ll need to secure a home loan.

In many cases a monthly installment on a home loan is more or less the same as a rental payment on a lease contract. The only exception is the transfer duty fees which is payable upon registration of your bond “ although this may even be included in your bond amount.

So, you’ve decided to purchase your first home and all you need now is the finance.

You’ll want to remember that as a first time home buyer there are a number of special criteria which you’ll need to fulfill if you wish to qualify for home loan finance.

One of the most important factors to consider is what size bond you can qualify for.
Often this is about 25-30% of your joint salary, meaning that if you and your partner apply for the home loan jointly you could be approved for a larger loan.

KEY FACTORS for your home loan application:
The minimum home loan amounts offered by most banks in South Africa usually vary between R100 000 and R150 000.

Upon the application for your home loan the bank will consider the Loan-to-Value ratio (LTV) , which is the ratio between the home loan amount you’re applying for and the value of your property.

For example, Mrs. A. has R100 000 available as a deposit for a property which is valued at R500 000, she therefore only needs to apply for a R400 000 loan, the LTV is therefore 80%.

The reason this is so important when applying for a home loan is because the LTV percentage forms part of the interest rate calculation on your loan amount.

The lower the LTV percentage – the lower the interest rate will be on your mortgage.

Remember that as a first time home buyer you might not have a deposit available for your new home, therefore many banks provide LTV percentages of up to 108%. Meaning you can get a loan which covers the full value of the home and all costs included.

The maximum loan term offered by all banks is twenty years, and some banks require a life policy to be ceded to them. It is important to clarify this with your bank immediately.

REQUIREMENTS:
The general requirements of applying for your first home loan are the basic details of your monthly salary, your credit history and the offer to purchase.

The following criteria will need to be passed to qualify for a home loan

1) You’ll have to be 21 years or older
2) Six months permanently employed or at least self-employed for two years
3) The minimum salary requirements can vary between R8,000 and R10,000/pm joint or single income.
4) You’ll need to have a credit clear history, i.e no judgments or defaults.
5) Some banks may require SA citizenship.

Make sure you have all the following documents available.

1) Copy of ID,
2) If you’re full-time employed, 3 months bank statements.
3) Offer to purchase, which is the written agreement between the seller and the buyer on the purchase price of the property.
Sectional Titles must submit most recent body corporation financials.
4) Most recent payslip, although commission earners will need to submit 6months payslips.
5) If you’re a self employed business owner,
- 6 months business accounts statements
- 6 months personal bank statements
- a letter from auditor or accountant stating monthly income.

To apply for your Loan – Click Here

or call us on 011 327 4489