One of the first questions prospective homebuyers often ask is: how much deposit do I need to buy a house?
You may have heard that you need 10% of the purchase price. Someone else may tell you that you don’t need a deposit at all. Another buyer may have been asked by their bank to contribute considerably more.
The reason for the conflicting answers is simple.
There is no single deposit amount that applies to every homebuyer in South Africa.
Some buyers may qualify for a 100% home loan and purchase without contributing a deposit towards the purchase price. Others may receive approval subject to contributing a percentage of the purchase price themselves.
At LEAP Home Loans, we believe this is why the deposit conversation should start with your individual financial position rather than an arbitrary percentage.
What is a property deposit?
A deposit is the portion of the property’s purchase price that you pay from your own funds rather than financing through your home loan.
For example, if you purchase a property for R1.5 million and contribute a R150,000 deposit, you are contributing 10% of the purchase price and would need finance for the remaining R1.35 million.
That sounds straightforward, but there are two separate issues buyers need to understand.
There is the deposit you agree to pay in the Offer to Purchase, and there is the amount the bank is prepared to finance.
They are related, but they are not necessarily the same thing.
If a bank approves less than the full purchase price, you generally need to fund the shortfall yourself for the transaction to proceed, subject to the terms of your agreement.
This is one reason buyers should understand their financing position before committing to a property.
Do you need a 10% deposit to buy a home?
Not necessarily.
The idea that every South African buyer needs a 10% deposit is too simplistic.
A 10% deposit is commonly used as an example when discussing home finance, but it is not a universal requirement. Qualifying buyers can receive 100% home loans, meaning the bank finances the full purchase price.
Whether you qualify for this depends on the bank’s assessment of the application.
Banks are lending their money against the property, so they need to assess both the borrower and the security supporting the loan.
Factors can include your income and expenses, existing debt, credit profile, repayment history, the amount being borrowed and the bank’s assessment of the property.
This is why two people buying properties at exactly the same price can receive very different home loan offers.
What does a 100% home loan mean?
A 100% home loan means the bank agrees to finance 100% of the property’s purchase price.
For a R1.5 million property, that would mean a home loan of R1.5 million.
It can make home ownership significantly more accessible to buyers who have sufficient income to afford the repayments but haven’t accumulated a large cash deposit.
However, qualifying for a 100% bond doesn’t necessarily mean that buying with no deposit is automatically the best financial decision.
If you have savings available, there can still be advantages to contributing some of your own money.
Why can a deposit help?
The most obvious advantage is that you borrow less.
Suppose two buyers purchase identical R1.5 million properties.
Buyer A obtains a 100% home loan and borrows the full R1.5 million.
Buyer B contributes R150,000 and therefore needs to borrow R1.35 million.
Before considering any difference in the interest rates they are offered, Buyer B is already financing R150,000 less.
That means a lower amount on which interest is calculated and, all else being equal, a lower monthly repayment.
Over a 20 year home loan, that difference can become substantial.
Could a deposit help you get a better interest rate?
Potentially, yes.
A deposit reduces the amount the bank is lending relative to the property’s purchase price.
This relationship is often described as the loan to value ratio, or LTV.
If you purchase a R2 million property and borrow R2 million, the loan represents 100% of the purchase price.
If you contribute R200,000 and borrow R1.8 million, the loan represents 90%.
From the lender’s perspective, the second transaction generally involves less lending exposure relative to the property.
That can form part of the bank’s pricing decision and may contribute to a more favourable interest rate. It does not guarantee that you will receive a lower rate because the bank still considers the rest of your financial and credit profile.
This matters because even a relatively small difference in the interest rate on a home loan can make a meaningful difference over a long repayment period.
A deposit isn’t the only cash you may need
This is where buyers need to be particularly careful.
Having enough money for a deposit does not necessarily mean you have enough money to complete the purchase.
There are other costs associated with buying and financing property.
Depending on the transaction, these can include transfer duty, transfer attorney fees, bond registration costs, bank initiation fees and other related expenses.
There may also be immediate costs after taking ownership, such as moving, insurance, rates and taxes, levies where applicable and maintenance.
Even buyers who qualify for a 100% home loan should therefore establish which additional costs they will need to fund themselves. A 100% home loan refers to financing the purchase price and should not automatically be interpreted as the bank paying every cost associated with buying the property.
Should you use all your savings for a bigger deposit?
Not automatically.
A larger deposit has clear benefits, but putting every rand you have into the purchase can leave you financially exposed after registration.
Owning a home introduces expenses that renters may not previously have been responsible for.
A geyser can fail. A roof can leak. An appliance can need replacing. Municipal accounts, insurance and maintenance continue regardless of what you’ve just spent purchasing the property.
The goal shouldn’t necessarily be:
“What is the biggest deposit I can possibly pay?”
A better question is:
“What deposit makes sense while leaving me financially comfortable after I buy?”
That answer will be different for every household.
What if the bank requires a deposit?
This is another important distinction.
You may apply for a 100% home loan but receive approval for less than the purchase price.
For example, you agree to purchase a property for R1.5 million but the financing available to you only covers R1.35 million.
You now have a R150,000 shortfall.
If your Offer to Purchase is appropriately subject to obtaining the required finance, the wording and amount specified in that clause become extremely important.
Buyers should therefore avoid assuming that applying for a particular loan amount means the bank will necessarily approve that amount.
Application and approval are not the same thing.
Does paying a deposit strengthen your offer to a seller?
It can.
A deposit may demonstrate that a buyer has committed some of their own funds to the transaction and may make the financing structure of an offer more attractive.
But sellers don’t evaluate offers on the deposit alone.
Purchase price, finance conditions, timing, suspensive conditions and the overall certainty of the transaction can all matter.
A higher deposit does not automatically make a lower offer better than every competing offer.
It needs to be considered as part of the complete transaction.
Where should the deposit be paid?
This is an area where buyers should be cautious.
A property deposit should be handled according to the terms of the signed sale agreement and paid into the appropriate trust account, commonly that of the transferring attorney.
Never simply transfer a substantial deposit because somebody sends banking details by email or WhatsApp.
Property transactions are a target for payment redirection fraud. Buyers should independently verify banking details with the relevant attorney or authorised party before transferring funds.
When large amounts of money are involved, a quick verification call can be extremely important.
So, how much deposit should you actually have?
There isn’t a percentage we can responsibly give every buyer.
You may qualify for a 100% home loan.
You may benefit from contributing 5%, 10%, 20% or another amount.
Or the bank may require you to contribute a deposit before it is prepared to finance the transaction.
The appropriate amount depends on your finances, the property, the loan application and the offers received from lenders.
That’s why we wouldn’t recommend delaying your property search simply because you’ve been told that you “must have 10%” without first establishing what financing may actually be available to you.
Equally, we wouldn’t recommend assuming you’ll receive a 100% home loan simply because another buyer did.
Get pre-approved before deciding what you can afford
The deposit question becomes much easier once you understand your own financial position.
A home loan pre-approval can help establish what you may realistically be able to afford before you start making offers on properties.
Through LEAP Home Loans, we assist buyers with pre-approvals and home loan applications across multiple banks.
This is particularly useful because one bank’s lending decision isn’t necessarily the same as another’s. Home loan applications can differ in the amount approved, deposit requirement and interest rate offered.
For buyers, the objective isn’t simply to get a bond.
It’s to understand the financing options available and make a property decision that remains affordable after you’ve received the keys.
Final Thoughts
There is no universal deposit that every South African homebuyer needs.
The familiar 10% figure is useful as an example, but it isn’t a rule.
Some buyers may qualify for 100% finance. Certain qualifying buyers may have access to products above 100%. Others will need to contribute a deposit before the bank is prepared to finance their purchase.
And even if a deposit isn’t required, paying one can still reduce the amount you borrow, lower your repayments and potentially influence the lending terms available to you.
The important thing is not to base one of your largest financial decisions on what another buyer was offered.
Find out what applies to you.
This article provides general property and home loan information and does not constitute financial, legal or credit advice. Home loan approval, loan amounts, deposit requirements, interest rates and lending terms remain subject to individual lenders’ credit criteria and the applicant’s circumstances.
