For many buyers, saving enough money for a deposit can feel like one of the biggest obstacles to homeownership.
The good news is that a deposit isn’t always required. South African banks may offer qualifying buyers a home loan covering 100% of the property’s purchase price, while certain first-time buyer products can provide financing above 100% to assist with some of the costs of purchasing a home.
For example, Nedbank currently offers qualifying first-time buyers financing of up to 109% of the purchase price, subject to its lending criteria, with the additional amount intended to help cover bond registration and transfer costs.
So, if buying without a deposit is possible, is there still any reason to save for one?
Absolutely.
Even when you qualify for a 100% home loan, contributing some of your own money can reduce your monthly repayments, lower the amount of interest you pay over time and potentially strengthen your application.
More importantly, savings give you options when the time comes to buy.
Do You Actually Need a Deposit to Buy a Home?
Not necessarily.
Some buyers may qualify for a home loan covering the full purchase price of the property.
Certain first-time buyer products go even further. Nedbank currently offers qualifying first-time buyers up to 109% financing, while Absa advertises first-time buyer products offering financing above 100% subject to the relevant product and lending criteria.
This can make homeownership more accessible for buyers who earn enough to afford the repayments but haven’t yet accumulated substantial savings.
However, a 100% home loan is not guaranteed.
Banks assess home loan applications individually, taking factors such as income, expenses, affordability, credit history and the property itself into consideration.
Saving towards a deposit therefore gives you another option.
If a bank isn’t prepared to finance the entire purchase price, your savings may help cover the difference.
And if you are approved for 100% finance, you can decide whether you’d prefer to borrow the full amount or contribute some of your savings to reduce the loan.
How a Deposit Can Reduce Your Monthly Repayment
One of the clearest benefits of a deposit is a smaller monthly bond repayment.
The reason is simple.
You’re borrowing less money.
Absa’s current consumer guidance explains that paying a deposit reduces both the home loan amount and monthly repayments. It also notes that a deposit may potentially contribute to securing a better interest rate.
Consider a R1.5 million property.
A buyer with no deposit needs to finance R1.5 million.
A buyer with a 10% deposit needs R1.35 million.
A buyer with a 20% deposit needs R1.2 million.
Assuming the same interest rate and repayment period, each increase in the deposit reduces the required monthly repayment.
That can make a meaningful difference to your household budget after you’ve moved in.
A Deposit Can Save You Money for Years
The monthly repayment isn’t the only consideration.
A home loan is a long-term financial commitment, and interest is charged on the outstanding balance.
Reducing the amount you borrow therefore reduces the amount of capital on which interest can accumulate.
Nedbank’s guidance uses a 10% deposit to demonstrate how reducing the size of a home loan can lower monthly repayments, with larger deposits producing further savings.
The exact savings will depend on your loan amount, interest rate and repayment term.
But the underlying principle doesn’t change:
Every rand you don’t need to borrow is a rand you won’t be paying home loan interest on.
Over a 20-year bond, that difference can become substantial.
Could a Deposit Help You Get a Better Interest Rate?
Potentially.
Your interest rate isn’t determined by your deposit alone. Banks consider your overall financial and risk profile when deciding what rate they’re prepared to offer.
However, contributing a deposit means the bank is financing a smaller proportion of the property’s purchase price.
Absa specifically notes that paying a deposit may help a borrower obtain a lower home loan interest rate compared with purchasing without one.
Even a relatively small difference in the interest rate can matter when applied to a large loan over many years.
This is also why buyers shouldn’t look only at whether a bank says yes to their application.
The terms of the approval matter too.
A Practical Example
Imagine two buyers are each purchasing a property for R1,500,000.
Buyer A qualifies for a 100% home loan and borrows the entire R1.5 million.
Buyer B has saved R150,000 and decides to use it as a 10% deposit, reducing the required home loan to R1.35 million.
Buyer B begins homeownership owing R150,000 less.
If both buyers received the same interest rate and repayment term, Buyer B would have a lower required monthly repayment and would pay less interest over the life of the loan.
If the bank also offered Buyer B a more favourable interest rate because of the lower lending risk, the potential saving could be greater.
The deposit therefore provides a benefit twice:
You borrow less, and you may potentially receive better lending terms.
The actual interest rate offered will depend on the bank and the buyer’s individual application.
Could a Deposit Strengthen Your Home Loan Application?
A deposit can also become useful when the bank isn’t prepared to approve the full amount you need.
Suppose you’ve found a home for R1.5 million, but your approved home loan is R1.4 million.
Without savings, you may not be able to proceed with that purchase.
If you’ve saved R100,000, however, you may be able to contribute the difference yourself, subject to the terms of the sale and loan approval.
Nedbank notes that a deposit reduces the size of the loan required and that the resulting lower repayment can make affordability easier.
Saving before you buy therefore doesn’t only reduce debt.
It gives you flexibility if the bank’s approval doesn’t exactly match the purchase price.
Can a Deposit Increase Your Property Budget?
Potentially, but this needs to be approached carefully.
Imagine you’ve been pre-approved to borrow R1.5 million and you’ve also saved R150,000.
You could potentially use those savings to consider properties above your home loan amount rather than using the entire deposit to reduce your borrowing.
Nedbank identifies this additional purchasing flexibility as another potential advantage of saving a deposit.
But having R150,000 saved doesn’t automatically mean you should increase your property budget by R150,000.
There are other costs to consider, and buying at the maximum amount available to you can leave very little room in your monthly budget.
The goal isn’t to buy the most expensive property you can possibly finance.
It’s to buy a home you can comfortably afford to own.
What About 108% or 109% Home Loans?
This is particularly relevant for first-time buyers.
Purchasing a property involves more than paying the purchase price. There may also be transfer costs, bond registration costs and other expenses associated with the transaction.
Certain banks offer qualifying first-time buyers home loans above 100% to help address these upfront costs.
Nedbank currently advertises financing of up to 109% of the purchase price for qualifying first-time buyers, with the additional finance used towards attorney bond registration and transfer costs. Its current terms also provide for a potential 50% discount on the attorney bond registration fee for qualifying buyers.
Standard Bank currently advertises first-time buyer financing of up to 108% on qualifying applications, while Absa also offers certain products with financing above the purchase price.
These products can make purchasing a first home more achievable.
But there’s an important financial principle to understand:
Financing a cost doesn’t eliminate the cost.
If additional purchasing costs are incorporated into your home loan, you’re borrowing that money and repaying it according to the terms of the loan.
For some first-time buyers, that may be the most practical route into homeownership.
For someone who has already accumulated savings, contributing some of their own money could reduce the amount of debt they carry from the beginning.
Should You Use Your Deposit or Accept a 100% Home Loan?
There’s no single answer that works for every buyer.
Imagine you’ve saved R150,000 and the bank offers you a 100% home loan.
You now have choices.
You could use the full R150,000 as a deposit and reduce your bond.
You could use part of it as a deposit and retain the remainder for purchasing costs and emergencies.
Or you could potentially accept the full home loan and retain more of your available savings, depending on the terms of the approval and your financial circumstances.
This is why saving is valuable even if you ultimately don’t use the entire amount as a deposit.
Savings give you flexibility.
Don’t Put Every Rand You Have Into the Deposit
A larger deposit can be beneficial, but that doesn’t mean emptying your bank account is necessarily a good idea.
Owning a home comes with ongoing expenses.
Depending on the property, you may need to budget for:
- Rates and taxes
- Levies
- Homeowners’ insurance
- Moving costs
- Maintenance and repairs
- Security
- Immediate improvements
- Unexpected expenses
There are also purchasing costs that may not be covered by your home loan.
Absa’s guidance on buying costs similarly advises buyers to account for expenses beyond the purchase price and home loan itself.
Putting R200,000 into a deposit and having no emergency savings remaining may not necessarily leave you in a stronger position than contributing a smaller amount and retaining a sensible financial buffer.
The right balance depends on your circumstances.
How Much Should You Save?
There isn’t one deposit percentage that’s right for every buyer.
A 10% deposit is often used as a useful benchmark. Nedbank describes 10% and above as a sizeable deposit in its consumer guidance, while Absa uses a 10% deposit to illustrate the potential repayment and interest savings.
But 10% isn’t a rule.
Even a smaller deposit reduces the amount you need to borrow.
Your savings target should consider:
- The price range you’re considering.
- How much you may qualify to borrow.
- Your expected monthly repayment.
- Your other purchasing costs.
- Your existing financial commitments.
- How much emergency savings you’d like to retain.
For some buyers, putting down 5% while retaining an emergency fund may make more sense than contributing 20% and having nothing left afterwards.
The goal is not simply to achieve the biggest deposit possible.
It’s to enter homeownership on a sustainable financial footing.
Start Saving Before You Find the Property
One of the best reasons to start saving early is that you don’t yet know what your eventual home loan approval will look like.
You may qualify for 100% financing.
You may be asked for a deposit.
You may receive different interest rates or loan amounts from different banks.
Or you may qualify for more than expected and decide you’d rather borrow less.
If you’ve already saved, you have choices.
If you haven’t, your options may be determined entirely by what the bank is prepared to finance.
This is why your home loan preparation should ideally begin before you find the property you want to buy.
Start With a Home Loan Pre-Approval
Before deciding how much of your savings to use as a deposit, it helps to understand what you may realistically qualify to borrow.
A pre-approval gives you an indication of your affordability based on your current financial information.
From there, you can establish a more realistic property budget and decide how your deposit should fit into it.
At LEAP Home Loans, we assist buyers with free home loan pre-approvals and can submit qualifying home loan applications to multiple participating banks.
This allows buyers to compare the approvals available to them, including the loan amount, deposit requirements and interest rate, rather than considering only one lending option.
For a buyer who has spent months or years building a deposit, that comparison can be particularly important.
Final Thoughts
The availability of 100% and above-100% home loans means a deposit isn’t always essential to buying a property in South Africa.
That’s particularly valuable for first-time buyers who have sufficient income to afford a home loan but haven’t yet had enough time to accumulate substantial savings.
But not needing a deposit and not benefiting from one are two very different things.
Saving towards a deposit can reduce the amount you borrow, lower your monthly repayment, reduce the interest you pay over time and potentially strengthen your financial position when applying for a home loan.
Perhaps most importantly, it gives you options.
If you qualify for 100% financing, you can decide whether using some of your savings to reduce the loan makes sense.
If the bank requires a deposit, you’re prepared.
And if unexpected purchasing costs arise, you have a financial buffer rather than needing to find the money at the last minute.
Thinking about buying a home in Gqeberha? Contact LEAP Home Loans for a free home loan pre-approval. We can help you understand your affordability and compare qualifying home loan options from multiple participating banks before you start your property search.
Disclaimer: This article provides general information and does not constitute financial or credit advice. Home loan approval, interest rates, deposit requirements and financing above 100% remain subject to individual banks’ lending criteria and the applicant’s financial circumstances.
