Applying for a home loan (and having a decent deposit) increases your chances of getting your bond approved. You will need a smaller bond, meaning that the amount owed to the bank is decreased so you save on interest paid over the loan term. A deposit helps to lower your bond repayments. You will also be in a better position to negotiate the interest rate, since there is a lower risk for the bank, in loaning you the balance of the purchase price.
When budgeting for a home loan, a common mistake is to calculate what your maximum affordability limit is, without making provision for other monthly costs, unforeseen expenses and future rises in the Interest Rate.
Do a Comprehensive Affordability Exercise.
Pay a visit to your bank.
Ask a home loan consultant at your bank to assist you in finding out what amount you may qualify for, in terms of a home loan.
Ensure that you don't find yourself in financial difficulty!
Draw up a budget... allow for all monthly costs... and revisit your budget at least once a year! You will be surprised at how you tend to forget the budget and overspend, or how much the cost of, let's say, food has gone up in the last year.
Make Your Money Go Further. Budget, and stick to it.
- Be aware of spending impulsively. Do not carry too much cash, but also keep a 'healthy balance' in your wallet, purse, because bank charges and service fees on ATM usage and cheques can eat into your pocket.
- Avoid buying on anything on account. You save money by saving on interest, try to save. Even if it is as little as 1% of your salary each month.
- If you have a mortgage loan which allows you access to surplus money, use it as a vehicle for saving. You will be pleasantly surprised how quickly you can pay off your bond if you do not touch these savings.
- Be especially conscious to conserve water and electricity and other general running costs.
- Try to pay accounts in advance. You will benefit from interest earned instead of interest accrued.
- Be very disciplined with credit card spending to avoid high-interest rate charges.
Budget for maintaining your property.
Buying a house is not a simple, once-off, lump sum transaction and unlike being a tenant, a home is responsible for the financial burden of maintaining his property. Make sure that you have both the time and money to take care of things that need maintenance or repairs ha property. Leaving your home to fall into a state of disrepair will severely affect its resale value around - not to mention the fact that it will also infringe on your general standard of living.
The cost of selling, due to unaffordability...
Buying property is a long-term investment and in fact, until you are bond free, it is more of a liability than an investment. Property prices are not currently increasing in line with inflation or general salary increases, so even selling your property for what you paid for it (including your initial costs and maintenance costs) may be difficult if you intend to sell within a few years of buying.
If you need to sell a current property that you own, to afford buying another, it may be a good idea to put your current property on the market first. Speak to estate agents operating in your area to advise you on a selling price, and also do your own homework as to what similar properties are selling for in your area.
“This response has been prepared for information purposes only and does not constitute legal advice, or a legal opinion, the practical application will vary depending on the facts of each case. Please obtain a full legal opinion from a legal professional or tax practitioner if you wish to act on any aspect hereof as the response is not fully comprehensive. “