How to save for a home deposit on a tight budget

15 Sep 2016

Many people in their 20s and early-30s are renting their homes because they are paying off student loans and other debts, and owning a property seems like a simply unattainable dream - but if they are able to save some cash each month, they may be able to buy sooner than they thought.

Kotzé says if you were to buy a home priced at R750 000 with a 10% deposit, the current monthly repayment on the loan would be around R6 800, but if you could up the deposit to 15%, the monthly repayment would drop to under R6 400.

“First-time buyers should aim to save a deposit equal to about 10% to 12% of the purchase price of the type of home they want before applying for a home loan to cover the rest,” says Gerhard Kotzé, the new MD of the RealNet estate agency group.

“And if you can save more, so much the better, because it will reduce the amount you have to borrow and make your monthly home loan repayments much more manageable.”

For example, Kotzé says if you were to buy a home priced at R750 000 with a 10% deposit, the current monthly repayment on the loan would be around R6 800, but if you could up the deposit to 15%, the monthly repayment would drop to under R6 400.

“In some circumstances, a bigger deposit can also help you negotiate a lower home loan interest rate, and that could make your monthly repayments even more affordable.”

However, he says deciding to save is always a lot easier than actually doing so, and prospective home buyers will need to be both determined and creative in order to reach their target amount.

“A great place to start is by looking at your current accommodation costs, because if your rent is 30% or more of your income, it really might be worth moving to a cheaper place for now so you can set aside more money every month to buy your own home,” says Kotzé.

“Budgeting and saving for your first home shouldn’t make you feel deprived, but rather happy that every day you are getting closer to being able to give yourself something that you really want,” says Kotzé.

“But remember, if you are going to move, it should not be somewhere further from work, or you may just end up spending your rent savings on higher transport costs.”

Other ways to save when you are on a tight budget include paying a certain amount into your savings account first thing every month, before you pay your regular bills and instalments, and then making the rest stretch to cover variable expenses.

“In addition, you should get into the habit of always comparing prices before you shop, especially for your weekly or monthly essentials, and stop using credit cards, which just create more debt,” he says.

“You should also try some ‘old favourites’ like putting all your loose change into a jar every day, packing your own lunch for work, using public transport instead of the car as much as you can, selling off your unused goods or equipment and entertaining at home. Even if these measures only save a few rands at a time, they will still help you reach your goal faster.”

And finally, Kotzé says you should not let yourself get discouraged.

“Budgeting and saving for your first home shouldn’t make you feel deprived, but rather happy that every day you are getting closer to being able to give yourself something that you really want.”