Article summary
The First Home Loan Deposit Scheme allows first home buyers with deposits as low as 5% to get a home loan without paying Lenders Mortgage Insurance (LMI) fees. Essentially, the government will act as the mortgage insurer guaranteeing home loans for eligible first home buyers with a minimum deposit of 5% of the property value.
- Homebuyers who lack the funds for a deposit have another option available to them: the 100% home loan, in other words, a home loan with no deposit required.
- Banks in South Africa are currently approving more 100% home loans, in an attempt to boost the property market.
- Although putting down a deposit has many benefits, the 100% home loan presents first-time home buyers, who may have limited resources, with a viable way into the property market.
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While there are many benefits to putting down a deposit on your home, in today’s tough economic climate it may be more realistic to take out a 100% bond, especially if you’re a first-time buyer who does not have easy access to a deposit.
Indeed, if you fall into this category of homebuyer, you’re not alone. According to Kay Geldenhuys, Head of Sales Fulfilment at South Africa’s largest home loan comparison service, ooba Home Loans: “More than 60% of all the applications received by ooba Home Loans are from buyers who have no access to a deposit”.
More 100% home loans are being approved
The First Home Loan Deposit Scheme began on 1 January 2020. It allows eligible first home buyers to purchase a property with as little as a five per cent deposit and without the need to take out lenders. The First Home Loan Deposit Scheme is an initiative from the Australian Government designed to support eligible first home buyers purchase a home sooner. NHFIC provides a guarantee for eligible first home. There is a minimum deposit requirement for the Scheme. The Scheme is to assist singles and couples (together) who have at least five per cent (5%) of the value of an eligible property saved as a deposit.
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According to Geldenhuys, over 80% of these applicants are being approved for finance, and four out of five are successful in their bid to secure a 100% bond. The rest are required to raise a deposit, usually between five and ten percent of the purchase price.
“Contrary to the widely held belief that the chances of getting 100% financing are slim, these stats prove that, when correctly represented, buyers have a very good chance of obtaining a bond without a deposit,” she says.
How a home loan comparison service can help you get a 100% home loan
However, Geldenhuys emphasises the importance of using a reputable home loan comparison service. “Banks are willing to approve 100% bonds if they can see that you have a clean credit history and can comfortably afford the monthly repayment instalments. A reputable home loan comparison service will ensure you are correctly represented to the financing institutions so that they view your application in a favourable light.
“It’s essential that these candidates evaluate their financial situation before applying for a bond,” she adds, noting that there are, equally, many advantages to putting down a deposit.
100% home loan versus putting down a deposit
“By providing capital upfront in the home-buying process, you will avoid paying interest on that amount of money for the duration of your loan period, which can amount to a significant saving in the long term,” she explains, adding that “It also stands to reason that the smaller the risk for the bank, the more negotiable it will be on your interest rate”.
Why now is a good time to get a 100% home loan
The banks’ confidence in the South African property market has resulted in a greater willingness to lend, with ooba Home Loans reporting a 4.5% increase in their home loan approval rate since the third quarter of 2018. There has also been a 5.1% increase in the approval rate of 100% home loans, partially as a result of banks catering to the needs of first-time homebuyers, who are less likely to have money for a deposit.
Home Loan Deposit Scheme
To gauge the affordability of your property price, and the likely chances of obtaining bond approval, it’s advisable to get prequalified with a home loan comparison service such as ooba Home Loans, who provide prequalification as a free service prior to the start of the home-buying process.
Low Deposit Home Loans
“Once you have an indication of the deposit required, you’ll be better positioned to consider the best approach needed to obtain your financing,” Geldenhuys says.
Loan Depot Loans
ooba Home Loans also offers a range of tools that can make the home-buying process a lot easier. To calculate your monthly bond repayments at different interest rates, use ooba’s bond repayment calculator. Then you can use the ooba Bond Indicator, a free, online prequalification tool, to determine your credit score and what you can realistically afford. Finally, when you’re ready, you can apply for a home loan.
Home Loan Deposit Calculator
It gives the lender an idea of what you can afford to repay regularly
Regular savings deposited into an account over a period of several months, regular rental payments and investments all work together to give lenders an indication of your ability to maintain your home loan repayments.
Lenders will look at these and your income sources (salary, investments, dividends) to assess how much money they’re willing to lend to you. Use our borrowing power calculator to get a rough estimate of how much you may be able to borrow.
It impacts the interest rate lenders may offer
The deposit you have available when you come to apply for your home loan can have an impact on the interest rate of the loan.
The bigger your deposit, the more negotiating power and choice of lenders you may have. If you have a bigger deposit, you may even be able to secure a discounted interest rate from a lender.
It affects how 'risky' you are as a customer, and whether you need to pay Lenders Mortgage Insurance (LMI)
Lenders use a simple Loan to Value Ratio (LVR) calculation to assess how risky they consider you (as a borrower) to be. The loan to value ratio looks at the amount you wish to borrow in relation to the value of the property you're looking to purchase.
The higher this ratio, the more risk for the lender. Generally, if you have an LVR of over 80% (as in you wish to borrow more than 80% of the property's value) the lender will require you to pay an LMI premium. This insures the lender against any losses that may occur in the event you default on your loan.
There are alternatives to paying LMI, such as have a family member act as a security guarantor for your loan.
You pay less interest over the life of your loan
The less money you borrow, the less you have to pay off in the future. This means over the course of the home loan, you’ll also be paying less interest. You stand to save a lot by having a sizeable home loan deposit.