6 Reasons why a deposit is important when buying property!

South African interest rates are at their lowest in over 50 years, the banks are competing aggressively for home loan business, and the prime lending rate is now 7% - making it the great time to buy property.

Buying a home is one of the best long-term investments you will ever make. However, taking the first step to make a purchase can sometimes be daunting and even intimidating, more so now with the current unprecedented times we live in.

As a first-time home buyer, the most important thing to consider is whether or not you can afford to take this big step. While it is still possible for a bank to grant you a 100% home loan which does not require a deposit, we strongly encourage you, as a first-time home buyer to consider putting down a minimum deposit of at least 10% of the value of the property to ensure that your home loan repayments are reduced and more manageable.

Consider these 6 reasons why paying a deposit is important when buying property:

1. It demonstrates commitment towards buying the property

A deposit demonstrates that you have the financial means to make the purchase and are comfortable to take on some level of risk until the deal closes. It's also an excellent way to further prove that you are ready to take on the costs that come with home ownership.

2. It increases the strength of an offer/ or the chances of having the offer accepted

Paying a deposit will also improve your chances of having your home loan application approved by the bank and will place them in a better position to negotiate for more favourable terms.

3. It reduces the risk of lending

The benefit of paying a deposit when applying for home finance is that you are seen as providing equity into the deal thus reducing the bond amount required. This views the deal more positively by the bank and will also reduce your instalment as you are borrowing a lower amount. By reducing the amount, you need in a loan, you are also reducing the amount of home loan interest you pay over time.

4. It increases your ability to negotiate a better rate

Putting down a deposit will not only improve the chances of having a home loan application approved, but will also place you in a better position to negotiate for a more favourable interest rate. This further reduced the amount of interest you will pay over the term of the loan.

5. It allows saving on interest over the term of the loan and lowers monthly repayments

The interest rates are currently at all-time record lows. Putting down a deposit for a home loan will further reduce the interest rate and monthly instatements allowing you to repay faster before the term completes. When paying a deposit, the overall value of your loan will be smaller meaning that you will be able to pay it back sooner.

6. Saving for a deposit mentally prepares you for a home loan repayment

Saving for a deposit sets the tone of what's to come. It is a great practise run for the commitment that will be required to ensure that you have the required funds and mind-set to fulfil the obligations of monthly repayments in the long term.

Finally!

Now is the right time to get into the property market.  We encourage you, as a first time home buyer to look carefully to assess you circumstances and work out how much you can afford to pay back each month. The earlier announcement by National Treasury to waive transfer duties for properties priced at R1 million or less is further affirmation that now is the time to take advantage and invest in property.