Buying your first home is truly a life-changing life event. For many, the prospect of owning a property means that you have made a sound investment in building wealth over time. However, the decision to buy a propety can be stressful, as, being able to afford to purchase a new home and meet home loan repayments can be daunting.
Provided you are employed, you are earning a steady income and you have a good credit history, you should be well-positioned to apply for a home loan.
Here is what you should consider when saving money for your first property purchase:
Calculate what you can afford
Before you consider buying a home, you need to calculate whether you can afford a property from both a price and repayment perspective. If you are planning to apply for a home loan, you will need to understand what you can afford. Easily calculate your affordability to determine this. Then, calculate your home loan repayments as this will give you a good sense of your ability to afford the purchase.
However, there are also some other smart financial moves you can make right now to prepare yourself ahead of applying for a home loan.
Pay off all your debts
Debt such as credit cards, car loans and retail accounts can severely limit the amount you can pay towards financing a home loan and will limit the amount the banks will be willing to lend you, as your risk profile will be elevated. To avoid this, we recommend that you pay off debt before you begin searching for a property or applying for a home loan.
Make a budget to save for a deposit on your new home
Draw up a budget and stick to it to save money to pay a deposit for your new home – and stick to it! Here are some handy how-to tips:
- Use a mobile app that helps you record and track your spending.
- Identify any non-essential spending that you can eliminate, such as entertainment and dining out.
- Aim to save 10% to 15% of your monthly income.
- See if you can reduce fixed monthly expenses such as your cellphone accounts or internet by using less and/or 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 you can afford, you need to decide how much you will need for a down payment. As a general rule, if possible, you should try to place a down payment of 20% or more of the total cost of your new home. Banks are more likely to offer you a better home loan interest rate if you pay a deposit as this demonstrates that you are responsible with money and the risk of the loan is reduced. Paying a deposit will also substantially reduce your repayments on a 20-year bond.
Beware of additional costs
With any property sale, there are a host of additional costs that you may not be aware of. These costs can include:
- Bond registration and transfer costs.
- Initiation fees.
- Additional expenses you should prepare for include moving costs, repairs and maintenance, rates and levies, and security costs.
Once you have a grasp of all the variables as a first-time buyer and implement a realistic financial plan, your dream of owning a home will be within your reach.
To learn more check out our handy and comprehensive Buying Guides.
Search properties or contact us: hello@leadhome.co.za or call us : +27 (0) 10 590 3088
