Whether you’re in your twenties, thirties or forties - owning your very own home will certainly be high on your list of financial priorities and goals and as with any worthwhile investment, it certainly doesn't come easy.
Apart from conducting market research, looking for a property, saving for a deposit and finding a lender you also need to worry about coveyancing, attorney and deeds office fees that will all add up to a substantial sum.
We aim to help you understand the process of buying your very first home and provide you with a comprehensive list of mortgage providers that you can review and use to find the best lender for your needs and future goals. Finding the right lender starts with good research and ends with a comprehensive comparison of a variety of offers.
Types of Home Loans in South Africa
Being such a big commitment, one of the most important things that you need to know about home loans is that they aren't all the same. One of the primary distinctions made by lenders is that of fixed rate home loans and variable or, floating rate home loans.
A fixed rate home loan is one where the borrower pays a fixed monthly mortgage installment for a fixed period of time (usually -between 12 months and 2 years) before the variable interest rate is applied and the loan amount repaid each month fluctuates slightly.
When it comes to home loans, South Africans are certainly spoilt for choice with each bank and alternative mortgage provider offering an array of differing mortgage products to meet a certain need or to reach a specific target market.
There are specific home loan products designed to help people who are in the lower to mid-level income bracket and even home loans for individuals who are retired. Some home loan provider offer packages that allow you to access credit on a revolving basis - similar to a personal loan - that you can use to buy furniture, upgrade you home or conduct repairs when necessary.
Home Loan Providers in South Africa
All of South Africa's major banks offer mortgages to South Africans who qualify - this includes large banks like ABSA, FNB, Nedbank and Standard Bank, among others.
Furthermore, each of the registered financial providers have their own set of quite unique and distinct home loan options for customers - including some that allow homeowners to access a revolving line of credit or rather, a personal loan whenever it's needed.
Apart from these major banks who offer competitive financial solutions, there are also a handful of alternative bond providers like SA Home Loans. Loans South Africa have put together this comprehensive list of lenders to help make the home buying process easier, quicker and more enjoyable for you.
We also advise that you make use of a home loan comparison website or service so that you can identify features that meet your needs and of course identify the best offer on the market.
Saving for a Home Loan Deposit
Typically, most lenders will require the buyer to put down a 20% deposit to secure a home loan, provided that the buyers credit profile is up to standard and they have sufficient income to make the monthly mortgage payments.
Some lenders have introduced home loan products that do not require buyers to put up a deposit, especially if they come from a low income family or job that simply makes it impossible for them to save for a down payment.
While it may be possible to avoid the 20% interest when buying a home, particularly if you're a first time home buyer, however, paying a deposit will have many profound advantages for you in the short and long term.
These advantages include the following:
- Putting forth a deposit will increase your chances of having your home loan approved
- An estate agent or seller will consider you offer more seriously if they know you have a deposit
- A deposit will decrease your monthly repayments
- You will save a large amount of money in interest
Many first time home buyers cannot come up with a deposit and this affects their chances of being approved for a home loan not to mention that they will end up paying significantly more in interest payments in the long run. Even if you put up a 5% deposit, it's simply better than nothing.
Getting Pre-Approved for a Home Loan
When looking to buy a home one of the most important first steps is to secure pre-approval. This is essentially a conditional approval that is given by a mortgage provider to an individual or couple looking to purchase a home.
Pre-approval not only gives you an idea of what the mortgage provider will be willing to lend you but, it will give you more bargaining power with seller and give more weight to any offer that you put on the table.
When you apply for pre-approval the lender will consider your household income minus any existing debts and expenses which will result in a monthly disposable income. As a general guideline, no more than one third of a buyers monthly income should be used to pay a mortgage installment.
Buying your First Home
As a first time home buyer your first priority should be to save for the deposit on your home. This is best done by arranging a direct deposit from your monthly salary into a separate savings account.
During this time you should also request a copy of your credit report so that you can see where you stand and if your credit is sufficient to have you approved for a home loan. For those who have a lack of credit history applying for a credit card may help you boost your credit score and prove that you are indeed capable of managing debt.
Most large banks offer credit building credit cards which will provide you with a small credit limit to use and then repay according to your credit agreement. Opening up a store card with any major retailer can also help you develop a credit score provided that you make the minimum repayments on time every month.
Hidden Costs in Buying a Home
Apart from the deposit that buyers may need to put forth and the estate agents commission paid to the agent there are a range of additional costs that need to be considered.
These include conveyancing fees which include bond registration fees, sundries and petty expenses, deeds office registration fees, transfer duty, administration and home loan initiation fees which are charged by the lender and insurance fees among a few other provisions.
You should aim to save around 8% of the purchase cost of the property to cover these expenses which does not include the deposit.
Repaying your Home Loan Early
If you do have an emergency fund and additional cash flow to direct towards paying off your debts than you could save hundreds and even, thousands of pounds. The first loan that people usually want to repay early is their home loan - surely being tied down for years of your life by a mortgage may seem daunting - and, making extra payments could save you a lot of money.
Home loans usually come with very reasonable interest, since the loan amount is large and the loan term is lengthy but, this means that you have to pay that reasonable interest over a much longer period of time.
So the total amount you pay at the end of the day towards interest is going to be quite significant. By making "extra" payments on a regular basis you could reduce the interest and pay off your home loan much sooner, however, you must always look at your other debts first - particularly credit card debt and other short term loans first.
This is because short term debt usually carries higher interest than long term debt and you could save a lot more by repaying these first. If you want to go ahead and make additional payments on your home loan - you should read through your mortgage agreement and see what your lenders overpayment policies are - most will allow homeowners to repay an additional 10% annually without incurring any penalties and, if so, than you should focus on making only this extra payment.