3 Essential Tips to Save Money and Secure a Deposit on a Home
Category Advice
Saving for a deposit on a home is the first step to home-ownership. Once you accumulate the necessary funds for a down-payment, you will then be well on your way to finding your dream home and eventually gaining a property to your name.
Before you begin on your dedicated savings mission, you will need to decide on your chosen your location, preferred property size and other related requirements in order to determine your optimal price range. By understanding this, you will know the deposit amount you are saving towards.
After you’ve established your purchase price, you can then work towards achieving your goal. You should aim at saving approximately 10 to 15 % of the purchase price. Ideally, you should try and pay a bigger deposit as this will have long-term effects on your home loan repayments. For example, if you were to buy a home priced at R750 000 with a 10% deposit, your monthly repayments on your home loan will be around R6800 each month, but if you increase the deposit to 15%, your monthly repayments will drop to under R6400. This will bring in massive savings over the years, and in certain cases, a bigger deposit will allow you to negotiate a lower home loan interest rate which will in turn make your monthly repayments more affordable.
Although this is easier to say than do, De Lucia Group understands the challenges that accompany saving up for a deposit, especially in these tough economic times. We have, therefore, compiled an essential guide to help you save smarter and faster, so you can have a home you can call your own sooner rather than later.
How to build-up your savings
It is no secret that saving up for a deposit takes a great deal of determination, but you will also need to be creative to reach your target amount. The following three recommendations will help you cut back on costs so that you can put the surplus aside to help build your savings.
1. Reduce Essential Costs
The most important place to start the process is to reduce your essential costs such as rent and car repayments. If you are paying 30% or more of your income on rental costs, you will not be able to save each enough month for a deposit. It is, therefore, recommended that you move into a home that is more affordable and allows you flexibility to save each month. However, the new place that you choose should not be further away from your place of work or you may end up spending your savings on higher fuel costs.
Downscaling on your monthly car repayments is another vital factor when saving for a deposit. Paying installments each month on an expensive car will not only prevent you from saving adequately, lending institutions will also view it as unfavorable as they will doubt if you will have the necessary funds for your home loan repayments.
2. Be Punctual
A great avenue to save small amounts every month is to ensure that you pay off your monthly expenses on time to avoid paying penalties. If you take too long to make your payments beyond the due date, you will have to pay excessive interest rates that will shrink your savings. More so, paying on time, will prevent you from receiving a bad credit rating. Bad ratings will decrease your chances of obtaining a home loan, which subsequently means that your savings efforts will be in vain.
3. Invest Wisely
While you’re saving, it is important that your money earns interest so that it grows faster. An effective way to do this is to place your funds in a fixed savings account. This will generate modest interest, which can grow significantly when the time comes to pay a deposit on a home. It is also secure and carries little to no risk. If you’re looking to generate higher returns, you may want to invest your savings in shares or other equity-linked investment plans. However, this method can be risky, and it is therefore advisable that you seek advice from a professional financial expert before you begin investing.
Although building your savings may seem daunting at first as it requires you to change your lifestyle and let go of certain luxuries, always have your end goal in mind so that you’re constantly reminded why you are doing this. And what can be more rewarding than knowing you are saving towards having a dream home you can call your own?
Author: De Lucia Group
