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How much deposit do you need to buy a house?
No law says how big your deposit must be. Some buyers get a bond for the full price, and others are asked to put money in. What a bank asks of you depends on its policy and on your income, credit record and debts. Even when a bank will lend you 100%, a deposit usually makes your loan cheaper and easier to get, and you will still need cash for costs that sit on top of the price.
What a deposit does for you
A deposit is the part of the purchase price you pay from your own money. The bank lends the rest. The more you put in, the less you borrow, and the less interest you pay over the life of the bond.
Here is a simple example, using round numbers. On a home costing R1 000 000, a deposit of R100 000 means a bond of R900 000. A deposit of R200 000 means a bond of R800 000. The difference in your monthly repayment depends on the interest rate and the term, so try your own figures in the bond repayment calculator.
A bigger deposit can also help when a bank looks at your application. It shows you can save, and it lowers the amount the bank is exposed to. Banks decide each application on its own facts, so a deposit is a help but not a guarantee.
The cash you need besides the deposit
Many first-time buyers save a deposit and then find they are short on the day of transfer. The price is not the only cost. Set money aside for:
- Transfer duty. A tax paid to SARS. It is nil up to R1 210 000 and then rises in bands. Use the transfer duty calculator for your price.
- Transfer attorney’s fees. Not fixed by law, so quotes differ.
- Deeds Office fees. Set out in a gazetted schedule. For example, registering a transfer or a bond of R1 million to R2 million costs R1 738, plus a R52 lodgement fee.
- Bond registration costs. The attorney’s fees and Deeds Office fees for registering your bond. Read more in bond registration costs explained.
- Moving costs and early repairs. Keep a cushion for things you find after you move in.
The transfer costs calculator adds the main items together, and the full cost of buying a home goes through the rest.
The deposit you pay when you sign
An offer to purchase often asks you to pay a sum, also called a deposit, shortly after signing. This is part of the price, not an extra cost. It usually goes into the transfer attorney’s trust account, but that is what the offer says, not a general legal rule. An estate agent can also hold money in a trust account.
Check three things in the offer: who holds the money, when you must pay it, and who gets the interest. If you want interest on your money, ask for it to be held in an interest-bearing investment and have that written into the offer. See the offer to purchase: what to check for the other clauses to read.
Setting a deposit target
There is no single right percentage. A practical way to decide is to work backwards:
- Pick a price range using the affordability calculator, based on a monthly repayment you can carry comfortably.
- Estimate your transfer costs for that price.
- Decide how much of the price you want to pay in cash. Even a small deposit helps, and you can add to it from savings, a bonus or a gift from family if you have that option.
- Add your cash reserve. Leave yourself some savings after the purchase, so one unexpected bill does not put you behind on the bond.
- Divide the total by the months you have, and see how long it takes with the deposit savings calculator.
If the number looks too far away, a cheaper home, a longer saving period or a different area may bring it within reach. Renting while you save is a fair choice if the figures work. The rent vs buy calculator can help you compare the two.
What to do next
- Set a monthly saving target in the deposit savings calculator.
- Ask a bank or bond originator what it would lend you and what deposit it expects. If you use an originator, ask to see their credentials and check with the PPRA.
- Follow the steps in the first-home buyer’s guide.
This article is general information for South African readers, not legal, financial or tax advice. Rules and rates change, so check your own situation with an attorney, your bank or a tax practitioner. Our property calculators can help you work out the numbers.