What to consider when saving money for your first home

Buying a homeIndustryLifestyle

What to consider when saving money for your first home

7 December 2020 | Insights Team

Buying your first home is truly an exciting life event. For many people, the prospect of owning a property doesn’t only mean that they will have security for themselves and their family, but it also means that they have made a solid investment in their future.  However, the decision to buy a property is also one that fills many with trepidation,as they fret about how they will be able to afford their dream home.

As long as you are informed and earning a consistent income there is no need to panic; there are various prudent financial decisions that will help you save enough money for a deposit and a mortgage. Here is what you should consider when saving money for your first home:

Work out what you can afford 

Before you even consider buying a home, you need to define whether the property you are looking for is affordable according to your financial circumstances. The amount of money that the bank says that you will need might differ drastically from what you can afford. As such, you need to calculate what your current expenses are, compare that to your total or combined income (if you have a partner)  and then find out what the total costs will be to buy and live in your desired home.

Pay off all your debts 

These costs can include your monthly mortgage payments, home insurance, property taxes, electricity rates and potential home renovations. If your monthly income is below the costs that will be required of you, then you may have to look for a property in a lower price range than you had initially envisioned. Alternatively, you can use Bondspark to get a prequalification for free on your affordability 

Buying a house and taking out a mortgage while you still have major debt will ensure that you spiral into more debt and are hit hard financially. Debts such as credit cards, car loans and student loans could severely limit the amount you pay towards a mortgage. To avoid this scenario, it is advisable to pay off as much of your debt as possible before you begin searching for a property. It may seem that paying off debt in order to save is against your interests, but ultimately, you could save and free up thousands of rands that will help you to save quicker. 

Make a budget to save 

Once you are armed with more information about your financial circumstances, you should draw up a budget that will allow you to save money for the down payment. Here are some handy tips:

  • Find a mobile app that helps you record and track your spending
  • Determine frivolous or non-essential spending that you can cut out such as entertainment and dining out. 
  • Aim to save 10% to 15% of your monthly income. 
  • See if you can save on fixed monthly expenses such as your cellphone bill or internet by downgrading.
  • Cancel memberships and subscriptions you don’t use, especially if they are automatically renewed.

Determine how much you will need for a down payment 

Once you have worked out what properties you can afford, you need to decide how much you will need for a down payment. As a general rule, you should try to place a down payment of 20% or more of the total cost (if possible). Banks are more likely to offer you a better mortgage rate if you make a deposit as the risk of the loan is reduced. In some cases, a deposit on a home loan will not be required.

Beware of hidden costs

With any house sale, there will always be a host of hidden costs that you may not be aware of. These costs include:

  • A home loan or bond initiation fee that is charged by the bank for the processing of the bond application. 
  • A base fee plus a percentage of the loan amount that some banks use – other banks charge a flat rate of approximately R6,037.
  • A R6,000 initiation fee on the bond over and above the bond fees.
  • Transfer fees. While these fees are not included, you can attempt to apply for a 105% bond where the banks will include these costs. However, it is not a certainty that the banks will include these costs for first- time buyers.
  • Buyers must also be aware that they should not apply for a loan on credit under any circumstances, as this will affect their buying power.

Once you are aware of all the variables as a first-time buyer and implement a realistic financial plan, your dream of owning a home is within reach. It’s always advisable though to be completely aware and informed of all financial considerations. Check out our Buying Guides to educate yourself on the ins and outs of finance for home-buyers.

Insights Team

We're the "thinking arm" of Leadhome, combining expertise in data analysis, modelling, sociology, geography, and philosophy to interrogate current trends in the South African residential property market. Proudly contemplative since 2015.