While many banks are opting to give first-time buyers a 100% bond agreement, this isn’t a guarantee. You may still need to provide a home loan deposit, especially if you factor in the seller’s decision to include a deposit as part of the offer to purchase (OTP). This is something that sellers sometimes add into this agreement in order to prove that you’re serious about your intention to purchase. 

But if it’s not required, why should you take on the additional strain of having to save for a home loan deposit? After all, it takes a fair bit of dedication to cut back, say no to the nice things (even if only for a while), and put large chunks of your income away.  

There are a couple of reasons why it’s often better to save up for a deposit when purchasing a home, and hopefully, this will help you make an informed decision around whether you should put down a deposit – even if it’s only a few thousand.  

Lower Monthly Instalments 

Sometimes people think that having to put aside money for a deposit on top of all the other fees involved in buying a home is too much. But the reality is that playing a game of short-term savings could have long-term disadvantages. The most prominent of these is the fact that no deposit means that you won’t be able to reduce the loan amount and therefore reduce your monthly instalments.  

When you do the math, saving for a deposit in the short-term will mean that you’ll borrow less and therefore pay less every month. Essentially, it makes your payments more affordable. And clearly the more sizeable the deposit, the lower your instalments will be in the long-run.  

Save More On The Interest 

In simple terms, the home loan deposit you pay towards the purchase of your home will lower the total amount of interest that you pay over the term of your loan.  

Let’s say, for example, that you want to buy a home for R1 million and your loan terms include 20 years at an interest rate of 7.25%. By putting down a 10% home loan deposit, you can cut your total interest payments from around R897,000 to R807,000. That’s nothing to sneeze at and honestly, when you start looking at these numbers and see the difference a deposit can make, saving for a deposit becomes a much easier decision. 

Stand Out From the Crowd 

In these situations, having a deposit to put down could make the seller more likely to accept your offer over other prospective buyers. Essentially, a deposit can help you stand out from the crowd when vying for your dream home. 

Increase Your Negotiation Power 

An additional benefit of putting down a home loan deposit is that it could give you some leverage when negotiating a better interest rate. The main reason for this is because having a deposit indicates good financial habits – it means that you’re able to save money while honouring your other financial commitments.  

It also, importantly, proves that you’re a lower risk, which is always a good sign in the eyes of the bank. 

More Choice 

If you’re in a position to put down a sizeable home loan deposit and lower the amount you’d need to borrow, you could very well put yourself into a higher price bracket that you’d otherwise not be able to afford. You could shop around for homes that cost a bit more, without having to stretch your finances. 

Another way of looking at it, is that you might only just be able to afford the house in your price range. But putting down a home loan deposit could make things a lot more comfortable.  

Either way, a deposit gives you more options. 

The 4-Step Savings Strategy 

If keeping your monthly expenses lower is important for your peace of mind, then saving for a sizeable deposit is a viable route to home ownership with affordable payments. 

Here’s a simple, 4-step approach to saving for a home loan deposit: 

1. Find out your credit score so you can close any accounts that aren’t being used and reduce limits that have high available balances. 
2. Diligently track your spending to curb any overspending. 
3. Tackle your credit card debt – it’s the most expensive debt and eliminating your overdraft will free up more room to save for your deposit. 
4. Shop around to switch to cheaper service providers, such as medical aid and insurance. 

To get you started, you can use the AA Insurance Supermarket to get access to multiple car and home insurance quotes. 

Feeling informed?  

Knowing that a home loan deposit can significantly improve your chances of getting home loan approval from the bank with a better rate, it makes sense to consider how to save enough for when the time comes. Just remember these benefits when saving for your home loan deposit starts to feel like too big of a sacrifice. 

Don’t forget that AA Inform is home to a range of useful tools and resources, including our Home Affordability Calculator, access to free property valuation report, and much more.