Heres How to Save for Your Dream Home in Tough Times

The recent repo rate hike of 25 basis-points, which has brought the prime lending rate up to 10.5%, means that many South Africans who are saving towards their dream home may be under financial pressure.

Van der Merwe says as a general rule of thumb, banks require a third of your income to be disposable in order to approve a home loan. Budgeting can help you free up disposable income.

However, Eleanor van der Merwe, regional sales manager at ooba, national bond originator, says that although saving in the current environment is tough, it is not impossible.

Here are her essential tips to budget for a new house now:

1. Use an affordability calculator

An affordability calculator helps determine the size of the home loan you’re likely to obtain, and guides you towards the right property price bracket.

It also calculates bond and transfer costs, bond repayments and deposit saving amounts, which all help to assist you gauge how much you need to save before you the begin process of applying for a bond.

2. Set and work towards a deadline

Visualise how soon you want to live in your dream home and what you need to get there. Set a target date to keep you motivated and committed to saving.

Creating a deadline forces you to think each step through, as well as any challenges you might experience along the way. Each step, such as applying for a home loan, will require a certain amount of time, which will better inform you on how long it will take you to achieve your goal.

3. Free up disposable income

As a general rule of thumb, banks require a third of your income to be disposable in order to approve a home loan. Budgeting can help you free up disposable income. One way to do this is to ensure that your monthly expenses and debt repayments are paid on time every month.

Van der Merwe says that we are currently in a rising interest rate cycle, meaning that there may be more rate hikes on the horizon. This will continue to add pressure to your financial health each month, but it is imperative to not fall behind on your debt repayments as this would negatively impact your credit score.

The sooner you are able to pay off your debts, the better your financial position - especially if you are looking to climb the property ladder.

4. Skip that expensive holiday

Instead of planning a holiday to an expensive destination, or making use of luxuries while travelling, look at where you are able to cut down costs. This will allow you to put money away towards a deposit for your dream home.

However, do allow for a few entertainment treats per month to keep yourself motivated, but be cautious to not overspend.  

5. Get prequalified

A prequalification service is a preliminary assessment of your ability to qualify for a home loan, which enables you to search for a property within your range of affordability, whilst giving you the confidence of knowing that you are credit-worthy.

The services of a reputable bond originator can help you find out how much you can afford. This puts you at an advantage as you have the confidence of knowing that you have a far greater chance of being approved by the bank when applying for a home loan.