When it comes to buying a house in South Africa, the basic principle is to put away as much of a deposit as you possibly can. Your monthly loan payment will be lower if you make a larger initial deposit. The loan-to-value ratio of a home loan is used to classify different types of home loans (LTV). This refers to the proportion of the total value of the property that is covered by the bond. Therefore, if you have a 10% down payment, you will need a bond with a 90% loan-to-value ratio. Home loan interest rates have a tendency to drop in increments determined by the bank. They become more affordable in this manner due to the fact that the more equity you have, the less of a risk you present to the bank in the event that the value of your home drops.
How much of a deposit do I need to pay?
At the moment, the majority of agreements require a deposit that is somewhere in the neighbourhood of ten percent of the total purchase price; however, with the assistance of an estate agent, this can be negotiated with the seller. To get an idea of how much of a deposit you will need, here are a few things to consider:
Research
Visit a website that deals in real estate to do some research on how much your ideal home will cost.
Do the math.
Use a loan calculator to get a general idea of how much money someone earning your salary would be able to borrow. Consider including the income of your partner if the two of you intend to purchase a home together. This will help you understand your affordability better.
Buying a house with a 10% deposit
Always consider your down payment in terms of a percentage of the total price of the home you want to purchase. The higher the percentage, the lower the interest rate, and the simpler it will be for you to acquire a bond. To get a loan from the majority of financial institutions, including banks and building societies, you will need a deposit of at least 10%. However, you should be aware that the interest rates on these home loans will be the highest possible because of the higher risk associated with you. You will need to demonstrate that you can pay for the vehicle and have a good credit history. If the value of your property drops, you should also be aware that it will be more difficult for you to refinance your loan.
Buying a house with a 25% deposit
This provides a nice cushion of equity, and as a result, large banks will be more interested in doing business with you. If your credit history and employment history are satisfactory, you should be able to qualify for a wider variety of mortgages at more competitive interest rates if you have a deposit of this size. Keep in mind that your interest rate will be affected by any additional savings of 5% of your deposit that you can make. Therefore, a deposit of even 15% or 20%, for example, is preferable to a deposit of 10%. On the same note, a deposit of thirty percent is even better.
Buying a house with a 40% plus deposit
This will provide you with the most options for home loans that are currently offered at the lowest possible rates. Because you will already have a significant chunk of equity in the property, banks will view you as a low-risk customer because this will reduce the exposure of the bank to potential declines in house prices.
Can I buy a house without a deposit?
As a result of the need to attract first-time home buyers, banks have become more receptive to the idea of granting 100% home loans (where no deposit is required). If, on the other hand, the offer to purchase expressly states that the buyer is required to pay a deposit, then the buyer’s failure to do so will constitute a breach of contract, and the seller will have the right to withdraw from the transaction.
What happens to the deposit, and how is it managed?
Your deposit is important to you, so naturally, you want to know what happens to it. The first thing you need to understand is that you will not give the deposit to the person selling the home directly. It is deposited in an account (or trust), where it will remain secure until the process of transferring and registering the property is finished.
Will I be expected to pay a fee for the service of having my deposit managed?
In most cases, the administrative fee will be deducted from the interest earned rather than the capital investment even though it will be charged by the transferring attorney, estate agent, or Buyers Trust.
What happens if the sale doesn’t go through?
If the buyer is in breach of the contract and the breach cannot be remedied within a stipulated time frame, then you will forfeit your deposit, and the seller has the right to use this to cover any damages (such as legal costs) that have resulted from the deal not going through because it did not go through. If the buyer is in breach of the contract and the breach cannot be remedied within a stipulated time frame, then the buyer is in breach of the contract. If the acceptance of your offer to purchase is contingent on the approval of the bond, and if for some reason the approval of your financing application is denied, then your deposit will be returned to you. This is the case only if the acceptance of your offer to purchase is contingent on the approval of the bond. On the other hand, if you decide to withdraw your application for a bond intentionally, you might find yourself in breach of contract, and you might end up losing the money that you paid for the bond.
Learn more about your credit score and how it affects your ability to get a good bond: https://navigatingsouthafrica.co.za/what-credit-score-do-you-need-to-buy-a-house-in-south-africa/
References
How to Maximise your Mortgage Deposit. (n.d.). TotallyMoney. Retrieved November 9, 2022, from https://www.totallymoney.com/mortgages/mortgage-deposits/
6 Things to Consider When Paying a Deposit on a New Home.” Ooba, www.ooba.co.za/resources/home-loan-deposit. Accessed 9 Nov. 2022.
