The dream of owning your first home is both exhilarating and daunting, especially when it comes to saving for that all-important deposit but, whilst it may seem like a formidable task, innovative approaches and strategic planning can turn the dream into a reality.
READ: Overcome interest rate challenges: Boost your deposit
This is according to Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, who says: “Saving isn’t easy at the best of times but, with the cost of living crisis continually tightening our belts these days, it’s become even more challenging, however, property remains the best investment and nest egg for the future, so it’s worth biting the bullet for a while.”
She adds that despite increasing interest rates and the South African Reserve Bank’s forecast of a meagre 0.7% growth in the economy this year, housing loans continue to rise with total mortgage advances rising by 5% in August.
“This is a clear indication that real estate is still considered a stable investment in a tumultuous global economy, and it bodes well for the future of the market in a less than ideal economic climate.”
Geffen offers the following innovative tips to help you save for your deposit:
Automate Your Savings:
Make saving a seamless part of your financial routine by setting up automated monthly transfers to your dedicated home fund. Automating this process ensures that you consistently contribute to your home fund without the temptation to spend the money elsewhere.
Optimise Your Budget:
Scrutinise your monthly budget with a fine-tooth comb to identify areas where you can cut costs. Trim unnecessary subscriptions, dine out less frequently, and reassess discretionary spending and redirect the money you save into your home fund. Small adjustments can add up over time, significantly boosting your down payment savings.
Set Realistic Goals:
Establishing specific, measurable, and achievable goals is crucial for effective budgeting so break down your down payment target into manageable milestones. By setting realistic goals, you create a roadmap for your savings journey, making it more tangible and achievable.
Explore Renting Out Unused Space:
If you have extra space in your home, consider renting it out to generate additional income. The income generated from renting out a spare room or a guest house can supplement your savings for a deposit.
Negotiate Bills and Expenses:
Don't be afraid to negotiate your bills and monthly expenses. Contact service providers, such as internet and insurance companies, to explore potential discounts or better deals. Every Rand saved on recurring expenses is a Rand that can go toward your home fund.
Embrace the Side Hustle:
Consider channelling your skills and hobbies into a profitable side hustle. Whether it's freelance writing, graphic design or pet sitting, a side hustle can generate additional income specifically earmarked for your down payment.
Downsize Your Lifestyle:
Temporarily downsizing your lifestyle can yield significant savings. Consider living in a smaller, more affordable apartment or moving to a less expensive neighbourhood. Redirect the difference in rent or mortgage payments to your down payment fund. This sacrifice may be temporary, but the long-term benefits are substantial.
Sell Unused Items:
Declutter your home and pad your deposit fund by selling unused items. From clothing and electronics to furniture and collectibles, there may be hidden treasures in your home that can contribute to your savings goal.
Invest Strategically:
Consider strategic investment opportunities to grow your down payment fund. While it's essential to be cautious and consult with a financial advisor, investing in low-risk, diversified portfolios or retirement accounts or simply saving in a fixed deposit account can potentially yield higher returns than traditional savings accounts. Be sure to balance risk and reward based on your risk tolerance and timeline.
READ: Co-living or sharing digs tips
Saving is not always as easy as it seems, especially in tough economic times and Geffen says there are a number of pitfalls to avoid:
Neglecting the Emergency Fund:
Saving for a down payment is crucial, but neglecting your emergency fund can be a costly mistake. Unexpected expenses or emergencies can arise, and having a financial safety net in place ensures that you won't need to dip into your down payment savings.
Relying on Windfalls:
While receiving unexpected windfalls, such as tax refunds or bonuses, can be a pleasant surprise, relying solely on these occurrences is risky. Windfalls are unpredictable, and it's crucial to maintain a consistent and disciplined savings approach.
Overlooking Hidden Costs:
Focusing solely on the down payment can lead to overlooking hidden costs associated with homeownership. Be prepared for additional expenses, such as closing costs, property taxes, homeowners insurance, and potential maintenance costs. Factor these into your budget to avoid nasty financial surprises.
Ignoring Your Credit Score:
Your credit score plays a significant role in determining your mortgage interest rate. Ignoring your credit score or neglecting to address any issues can result in higher interest rates, increasing the overall cost of your mortgage. Regularly monitor your credit score and take steps to improve it if necessary.
Rushing the Process:
Rushing into a home purchase without thorough research and financial preparation can lead to regrettable decisions. Take the time to understand the market, explore various neighbourhoods, and ensure that your financial foundation is solid before making such a significant investment.
Not Seeking Professional Advice:
Attempting to navigate the complexities of homeownership without seeking professional advice can be risky. Consult with a financial advisor, real estate agent, or mortgage broker to gain insights into your unique situation. Their expertise can help you make informed decisions and avoid costly mistakes.
“With discipline, determination, and strategic planning, you can accelerate your journey toward homeownership. Remember, every penny saved brings you closer to unlocking the door to your dream home,” says Geffen.
READ: Homebuyers: Avoid these pitfalls by doing your financial homework
An article published on Property24 on October 12, 2018, features Mpho Ramatong, FNB Home Finance Division Channel Head: Housing Schemes, who said when lenders assess an application, affordability, which considers your total income relative to living expenses, is an important measure used to determine whether you would be able to keep up with monthly home loan instalments or not.
This can further influence the home loan amount and interest rate you would be quoted for the term of the loan.
“Therefore, taking the time to ensure that your living expenses are declared correctly can go a long way to ensure that you get the best possible bond deal from your bank,” said Ramatong as she unpacked some of the common mistakes that consumers make when completing the expenses portion of a home loan application:
1. Duplication
Some applicants fail to get a good home loan deal due to the duplication of expenses.
For example, if you have declared funds that you prepay into your credit card monthly, which you may be using to fill up for petrol and for groceries, you need not complete the groceries and petrol expenses portion in the form.
Ramatong said another form of duplication may arise if you are co-applying with a partner or individual that you stay with. In this instance, only one applicant may declare shared living expenses. For example, rent, water and electricity costs.
If the expenses are duplicated, lenders may not always be aware that the co-applicants stay together and share some expenses.
2. Dishonesty
Being dishonest about your living expenses may lead to your application being declined.
When applying for a home loan, banks require that you submit a payslip and six months’ worth of bank statements, amongst other documents. As a result, any disparity in the expenses portion of the form can easily be picked up by the bank.
3. Entertainment
Be careful not to mistakenly declare a high entertainment expense by failing to separate needs from wants.
For example, a need could be monthly costs for educational or recreational activities. A want can be anything that you would possibly cut back on in tough times, such as movies or eating out at restaurants, and so forth.
See what home loan you'll qualify for - click here
Finally
“If you aren’t sure about how to correctly declare expenses, it is advisable to consult your bank or an expert to avoid making costly mistakes,” said Ramatong.
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