Six reasons why deposit is important when buying a home
Buying a home is one of the best long-term investments most people 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.
While it is still possible for a bank to grant clients a 100% home loan which does not require a deposit, first-time home buyers are encouraged to consider putting down a minimum deposit of at least 10% of the value of the property.
Here are six reasons why paying a deposit is important:
1. It demonstrates commitment
A deposit demonstrates that clients 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 client’s chances of having your home loan application approved by the bank.
3. It reduces the risk of lending
The benefit of paying a deposit is that clients are seen as providing equity into the deal thus reducing the bond amount required.
The deal is viewed more positively by the bank.
4. It increases the customers’ ability to negotiate a be er rate
Putting down a deposit will also place the client in a better position to negotiate for a more favourable interest rate.
5. It allows saving on interest over the term of the loan and lowers monthly repayments
Putting down a deposit will further reduce the interest rate and monthly instalments, allowing clients to repay faster before the term completes.
6. Saving for a deposit mentally prepares clients for a home loan repayment
Saving for a deposit sets the tone of what’s to come. It is a great practice run for the commitment that will be required to ensure that clients have the required funds and mindset to fulfil the obligations of monthly repayments in the long term.
Now is the right time to get into the property market. We encourage first time home buyers to carefully assess their circumstances and work out how much they can afford to pay back each month.
The 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.