Let's get risky with deposits
It’s not easy to save for a deposit. Often, you sit with a lot of money readily available in a 32-day notice account, whereas this could’ve been invested in an ETF or stocks.
Yet, when buying property, you must have cash available.
Banks have a love-hate relationship with risk. They see risk as a way to justify a high interest rate. This does make sense, as they need to compensate for the risk they are taking lending money to risky people.
If you need more info about how to make yourself less risky, check out the post here on your credit record.
Why pay a deposit?
When you have the money available for a deposit, you can use this two ways as psychological leverage.
The first way is by negotiating a better purchase price on your property. You can tell the agent that you have a deposit of R x, which justifies the lowering of the purchase price.
The second option is to apply for the full amount as a loan. Quite often the bank will not give you a 100% loan. Because you have money available, you can pay this as a deposit.
If the bank gives you a 100 % loan, you have the opportunity to negotiate with them for the interest rate. Once you received a grant (sometimes called a quote), ask the bank/mortgage originator to negotiate for you again based on you paying a deposit.
Remember, you need to negotiate the best deal possible when buying and selling property
How do I save for a deposit?
It’s so important that you have a purpose when you do something in your finances. This is the reason so many people cannot save for a deposit – they become despondent and discouraged when there’s a lack of purpose.
Be explicit about your dream. Know what you are saving for.
The best way to begin is to begin! In short, here are the cliches you already know:
- Spend less than you earn
- Save the difference for a deposit
- Put the money away in a 32-day notice or money market. Don’t put it in your TFSA or into an ETF – these are for long term investments.
Having a deposit is one of the elements that will give you peace of mind on a property deal.
It gives you great negotiation leverage and when buying a property.
Now that you know about deposits, go now!