Buying your first home is one of the biggest investments you’ll ever make so it’s understandable you may be feeling a little overwhelmed. Before stepping onto the property ladder, it’s essential you do your homework and properly prepare for the journey ahead. To help you avoid any nasty surprises, we’re sharing the questions most first home buyers ask as well as our advice and recommendations.
1. How much deposit do I need?
Saving a deposit is probably the biggest hurdle for most first home buyers. At the very least, you’ll need to have saved a 10% deposit with 20% or more being the optimum. Loan to Value Restrictions (LVR) mean banks can only do up to 20% of their new lending to lenders with a low deposit – less than 20%.
2. Why does the size of my deposit matter?
The size of your deposit makes a big difference to the interest rate and the other costs you could potentially pay on your home loan. The bigger your deposit, the more you can negotiate on interest rate and the less chance you’ll be charged Lenders Mortgage Insurance (LIM).
3. What can I use as a deposit?
Your deposit can be made up of various funds including your own savings, KiwiSaver Withdrawal, HomeStart Grant, or a cash gift from family. Talk to your mortgage adviser if you need advice about saving a deposit.
4. How much can I borrow?
When determining how much you could potentially borrow, lenders will look at your income, credit history and employment history. Each lender has its own criteria when it comes to calculating your borrowing capacity so it’s worthwhile working with a mortgage adviser who can match you up with the right lender for your situation.
5. What other costs do I need to factor in?
As well as a deposit, you’ll need to be able to cover the following costs:
• Solicitor fees – these can vary from $700 up to $2000 depending on how complicated the sale and purchase process is.
• Builder’s report – expect to pay between $500 and $1000.
• LIM report – between $200 and $400 although some sellers may provide this information up front to buyers.
• Registered valuation – if your lender requires a valuation to confirm your finance, expect to pay between $500 - $700.
• Moving costs.
6. What is KiwiSaver HomeStart Grant?
If you’ve contributed to KiwiSaver for three years or more, you can apply for the HomeStart grant or pre-approval for a HomeStart grant (valid for six months).
If you are purchasing an existing/older home, the HomeStart grant is $1,000 for each year of contribution to the scheme:
3 years of contributing = $3,000 (the minimum you can get)
4 years of contributing = $4,000
5 years of contributing = $5,000 (the maximum you can get).
If you are purchasing a new home, a property bought off the plans, or land to build a new home on, the HomeStart grant is $2,000 for each year of contribution to the scheme.
3 years of contributing = $6,000
(the minimum you can get)
4 years of contributing = $8,000
5 years of contributing = $10,000
(the maximum you can get)
A home which received its building code compliance certificate fewer than six months before Housing New Zealand receives a KiwiSaver HomeStart grant application is also considered a new home. You need to live in the house you buy for a minimum of six months from settlement date.
You can also buy a property with other people who may or may not be KiwiSaver members. If they are members, they too may qualify for a KiwiSaver HomeStart grant. However, regardless of the number of eligible KiwiSaver members purchasing a home together, no more than $10,000 worth of grants will be paid for the purchase of an existing/older property and no more than $20,000 for a new home or for the purchase of land on which a home will be built.
House price and income caps apply so check your eligibility on the Housing New Zealand website.
7. What about KiwiSaver Withdrawal?
Once you've been a member of KiwiSaver for 3 years, you can withdraw some of your KiwiSaver savings to help buy a first home. If you have a partner who has also been a member of KiwiSaver for at least 3 years, they can also withdraw their savings to put towards your first home.
You can withdraw as much as you choose, but you must leave a minimum balance of $1000 in your account. You can withdraw:
• your contributions
• your Member Tax Credits
• your employer's contributions.
You must live in the house that you buy — it can't be an investment property. To take advantage of the KiwiSaver Withdrawal scheme and to check whether you qualify, contact your KiwiSaver provider.
8. How do I get started?
Getting your finance pre-approved is the logical next step. A Mortgage Express mortgage adviser works on your behalf to secure pre-approval from the right lender, will negotiate on interest rate and finance terms with the lender, and help you navigate the often complicated processes involved in securing finance right through to choosing the best insurance for your needs.
If you’d like to find out more about buying your first home, simply fill in your details here and one of our advisers will be in touch within 24 hours.
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While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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