Some advice to avoid first-time home buyers mistakes.

    August 26, 2017

    Home loans money saving tips for first-time buyers can help you avoid a lot of stress. Let’s face it, buying a house is the biggest decision you can make in your life.

    You don’t want to mess it up.

    How can I save money when buying a home?

    • Financial planning is critical
    • Buy a property that is affordable
    • Save a good amount of cash before attempting to purchase
    • Choose the shortest bond period possible
    • Pay a little more than required into the bond every month
    • Cut down on unnecessary expenses
    • Obtain advice from a home loan expert

     

    Without a financial plan, anyone entering the property market for the first time will be like a ship without a rudder.

    Buying a property is not only a rocky and emotional ride, it is also a sobering financial wake-up call for people seeking their first home. However, the sooner you get on the train, the cheaper it is.

    Home Loans money Saving tips for First-time Buyers

    Here are some tips on how to make the most of this journey.

    1. The property search

    Home Loans money saving tipsMany buyers fall into the trap of buying with their hearts and not their heads. You need to remain clear-headed and buy what you can afford.

    First, obtain a Pre-Qualification Certificate from a home loan service provider to establish an affordable purchase price. Now, pinpoint the desired location of the property and let the hunt begin. If selling prices in the area are higher than you can afford, select another suburb for the search.

    If two living rooms and a swimming pool constitute the dream, but not the reality, settle for one lounge and a modest garden instead. After all, this is a “starter” home and can always be sold further down the line when income levels improve to allow for the dream home.

    1. The purchase

    First-time buyers must have built-up a fair amount of cash before leaping into the property market. Weighing up the options of bond periods is extremely important and should play a major role when buying.

    • Deposits are required and can vary from 10% to 30%
    • Bonds can be taken out for 20 or 30 years

    Home Loans money saving tips – Let’s take a closer Look

    In this exercise, we have taken an R1 million property as the purchase price with a gross monthly income of R20 000 and an interest rate of 10.25%.

    • Deposit at 10% amounts to R100 000
    • Bond costs amount to R50 066
    • Monthly bond repayment over 20 years amounts to R8 834
    • Monthly bond repayment over 30 years amounts to R8 064

    The difference in the monthly saving on bond repayments is only R770. However, over 30 years the property will cost R2 903 368 which is almost three times the original purchase price.

    Over 20 years, the total amount paid for the same property will be R2 120 349. This constitutes a massive saving of R783 019. If one deducts the R277 200 in money “saved” on the long bond period, the buyer still ends up paying R505 819, which is more than half million for the same home.

    Home Loans money saving tips – Don’t forget The extra Payments

    This above repayment example does not include the additional payments related to owning a property. Homeowners have to pay the municipality rates and taxes every year. This can be arranged with the local authority as a monthly payment instead of one large annual fee.

    The homeowner must have an insurance policy to cover their debt in the event of death, total disability or extensive damage to the property, such as a fire. Apart from the ever-increasing cost of water and electricity, there is also the expense of property upkeep. These are all essential ingredients related to owning a property and present a sobering food-for-thought scenario.

    Home Loans money saving tips – Another way to Save on a Home loan

    One of the smartest ways to save on a home loan is to pay more than the stipulated monthly amount. For example, using the details of the property described earlier, an additional payment of R200 a month will reduce the bond period from 20 to 18.65 years.

    An R500 additional payment every month will slice three years off the life of the bond. By paying extra every month, no matter how modest the amount, buyers will save themselves a small fortune in interest repayments. This will be of far greater value than putting the same amount of money into a savings account.

    Why financial Planning is Essential

    With the introduction of the National Credit Act (NCA) in 2007, South Africans had to take a good and hard look at their spending habits. Prior to the NCA, it was far easier to obtain credit and deposits were not always required to obtain home loans.

    Easy finance began a culture of reckless spending habits that left many South Africans with high debt-to-income ratios. Statistics reveal that South Africans are not savers. In fact, most of them do not have any financial plan for their futures.

    The NCA has forced banks and home loan providers to carefully look at credit applications to assess the likelihood of default payments. This clamp down means that home buyers must become financially aware by learning to manage their debt if they are to have any chance of obtaining mortgage bond approvals.

    If in Doubt, consult Professionals

    The best advice for first-time home buyers is to speak to a financial planner before buying.

    Money can be saved on a monthly basis by simply:

    • Drawing up a budget and sticking to it
    • Driving a car you can afford
    • Cutting out luxury and unnecessary items
    • Comparing prices before buying
    • Reducing credit
    • Cutting out items added onto insurance policies and medical scheme contracts
    • Cutting down on water and electricity use
    • Restricting the amount of money spent at restaurants
    • Cutting back on a DSTV package
    • Making less cell phone calls

    Conclusion

    To enter the property market, you must become financially aware. You must buy within your means and try to pay a little extra into your bond every month. The best advice is to obtain guidance from a property loan professional. Always go for the shortest but affordable bond repayment period.

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    All info was correct at time of publishing