For many young South Africans, the prospect of buying a home might seem a bit out of reach.
In most cases, young people in their twenties are earning starter salaries that make it close to impossible to meet the criteria for a bank home loan.
In addition, very few young people have hundreds of thousands of Rands readily available to pay the transfer fees required when buying a home.
However, Karmen Wessels from the digital life insurer Sanlam Indie doesn’t think young people should just give up on the prospect of owning a home.
As challenging as it might be for millennials looking to break into the home ownership phase of life, she said it is not altogether out of reach.
Here are some tips from Wessels to help you get started:
Keep an eye on property websites
Start keeping an eye on property websites to get an idea of the kind of place you’re going for. Set your parameters on property websites and create specific alerts for properties within a certain area and price range to automate the search. If you’re a first time home buyer, it’s probably a good idea to start small. A smaller property in a better part of town is a great way to get your first step up on the property ladder.
You definitely need to start saving if you aren’t already. The more you put away, the quicker you’ll be able to reach your goal, but any small bit will help. Be smart about where you save your money, as certain types of savings and investment accounts will earn you higher returns and ultimately more money in the long run.
“Your two biggest upfront expenses will be the deposit, and associated fees (transfer fees, bond registration fees, lawyer fees, etc),” says Wessels. “The more you can pay into your deposit, the less your monthly bond repayments and overall long-term cost will be. A good credit score is also a key factor in not only qualifying for a bond, but one with a favourable interest rate.
Don’t disregard ‘free’ money
Wessels classifies ‘free money’ as money that comes to you via tax returns, inheritance, a gift or other out-of-the-ordinary circumstances. “It’s easy to think of this money as separate from your main income, and therefore use it to splash out on something you don’t need. Now is the time to let this windfall serve you better – in a savings account!” She says that the same should apply to any increases in your income. “Instead of using a salary raise to upgrade your lifestyle, think about saving or investing the difference instead.”
Double income can be beneficial
Double the income means double the chance of qualifying for a bond, and double the income for home loan repayments. This is a very personal decision, and one that is based on your individual situation, but doubling the money that you’re able to put into a deposit means relieving the pressure ever so slightly. If you do choose to purchase a property with a partner or friend, be sure to set up a contract to protect both of you in the event of an argument, sale or death.
When considering a massive investment like home ownership, it’s time to take a far more holistic view of your monthly budget and financial situation.
Consider savings in other areas, like downgrading your car or cutting a few luxuries out of the budget that you can do without for a year or two. It’s time to take a harder line on your monthly budget to enable more savings or even consider an additional income stream where possible. Keep in mind that while interest rates are lowered in South Africa, it’s a buyer’s market and now might be the perfect time to find your dream property.
Along with all the intricacies of home ownership, Wessels said consumers need to remember that life insurance is a necessity for a home loan – a monthly cost that should be taken into account in your monthly budget.
“Insurance is there to protect your dependents and yourself if anything should ever happen to you and you can’t pay your bond,” explained Wessels.