Important information for South Africans planning to buy their first home

Experts have urged first-time homebuyers in South Africa to budget for a deposit, even if banks offer 100% home loans, as it can improve their chances of bond approval, reduce monthly repayments, and secure a lower interest rate.

This is feedback from Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who explained that homebuyers no longer necessarily need a deposit.

“To try and make it easier for first-time buyers to enter the market, financial institutions have become more willing to grant a 100% home loan,” Goslett said.

This means that first-time buyers might not be required to pay a deposit to qualify for a home loan. However, he noted that some sellers may still require the buyer to pay a deposit. This will be stipulated in the offer to purchase.

“This just provides the seller with more security that the buyer is serious and can afford to go through with the purchase.”

“Buyers need to read the offer to purchase (OTP) carefully to make sure they are not caught off guard by this, as the sale will not go through until the required amount is paid.”

For those who do not have to pay a deposit, Goslett warned that bond and transfer costs will be payable upfront, in addition to the asking price.

This is the case regardless of whether they have paid a deposit. Usually, this amounts to roughly 10% or more of the asking price.

Goslett said that if the buyer doesn’t have this amount saved, they must apply for a 110% home loan or take out a personal loan to cover these costs.

“Apart from this, buyers should consider that providing a deposit will show both the seller and lender that you are serious about buying the property and can afford the purchase.”

“This not only improves your chances of having your home loan application approved, but it can also lead to a possible lower interest rate on your home loan.”

Beware of contract breaches

Goslett explained that in most cases, a reasonable deposit amount is around 10-20% of the seller’s asking price. However, buyers can pay more if they can and could negotiate to pay less if they cannot afford this amount.

“Remember that the higher your deposit, the lower the amount you will need to borrow from the bank and the lower your monthly instalments will be.”

Goslett said that once you have agreed to an amount, the deposit is not paid directly to the seller but rather to the transferring attorney, who places it in a trust account, keeping it safe until the property transfer and registration are complete.

The interest generated by the deposit will be paid to the buyer after the property is registered. If the sale does not go through, Goslett explained that the deposit could be subject to various outcomes.

“If your OTP was contingent on your home loan approval, and for whatever reason your bond was not approved, your deposit will be refunded to you.”

“However, if you withdraw your application, then you could be in breach of the contract and you might forfeit your deposit.”

He reminded buyers that the offer to purchase is a binding contract. If the buyer breaches the contract and it can’t be rectified within a specific time frame, they will lose their deposit.

In these cases, the seller has the right to use it to cover any legal costs they incurred as a result of the deal falling through.

“Buying your first home can be a daunting experience, but it doesn’t have to be. With a reliable and knowledgeable real estate professional at your side, navigating the complexity of purchasing your first home can seem like a breeze.”