First Home Buyers
Ways to get a deposit
Getting together a deposit can often be the hardest part about buying a house. With house prices and therefore deposit amounts getting higher there are a number of ways that you can get a deposit together for your first home.
- Savings – your own savings is the traditional way of getting a deposit for your own home. This is the ideal option as it show the bank you have a good savings history and means you have instant equity in your home
- Gifted deposit – banks will accept money gifted to you as a home loan deposit (such as a gift from a parent or family member)
- KiwiSaver HomeStart Grant – After a minimum of three years the new KiwiSaver HomeStart grant also provides eligible first-home buyers with a grant of up to $5,000 to purchase their first home or up to $10,000 if they are purchasing a new build. If you are buying property with someone else who is also a member of Kiwisaver, they too may be eligible for a Kiwisaver HomeStart grant.
- KiwiSaver Savings Withdrawal – After a minimum of three years membership of a KiwiSaver scheme you may be able to withdraw your savings, employer contributions and all returns (cannot withdraw Government contributions including $1000 kick start). The draw back of this option of course is that you decrease your savings towards your retirement.
- Other borrowing – Some institutions may also allow you to use other borrowing such as from family or friends, a personal loan or credit card to supplement your deposit, however, we would highly discourage this as it increases your total debt.
Applying for a Home Loan
When applying for a home loan it can be quite daunting, particularly if you have been declined by a lending institution before. It can sometimes be hard to know what lenders are looking for.
Since the recession lenders have definitely become more cautious when it comes to giving out their money. Gone are the days of 100% home loans. Most applications are assessed on a case by case basis, and each lending institution will have its own lending criteria based on how much risk they are prepared to take. However, in general they will all look at the following;
- Good credit history – a good clean credit history/rating is important to lenders. Those with poor credit histories will find it harder to get home loans. If you’re unsure about what your credit history is you can check it at www.mycreditfile.co.nz
- Deposit amount – in general 5% deposit is the very minimum but lenders look more favourably on those that have a higher deposit, particularly now when they are limited as to how many low deposit loans they can issue. Banks must now ensure that a the majority of their lending is under 80% LVR (or has a 20% deposit). Low deposit amounts can attract additional fees. Lenders may also have different deposit requirements for different types of properties (e.g. investment properties).
- Good savings / banking history – lenders want to see that you can save on a regular basis and live within your means. If your banking history has honour/dishonour fees each month or if you exceed your overdraft or credit card limit these could count against you.
- Ability to repay the loan – lenders want to see evidence that you have regular income coming in. When assessing your ability to repay the loan they’ll also take into account your need to live and pay other expenses.
- Consumer debt – banks look more favourably on those who have little or no consumer debt so when applying for a loan its best to have as little consumer debt as possible (HPs, personal loans, etc).
- The Collateral – The collateral (i.e. the house/dwelling/land) must be acceptable to the lender. For example, houses that have significant ‘deferred maintenance’ (i.e. need a lot of work/repairs done to them) may cause a lender to look at how you will afford to make the necessary repairs.
More information about buying your first home can be found on the Sorted website
Welcome Home Loan
The hardest part of buying a home is often saving for the deposit. A Welcome Home Loan helps you purchase your first home with just a 10% deposit.
To qualify for a Welcome Home Loan, you must:
- Be a first time buyer
- Live in the house you are buying
- Have a minimum 10% deposit
- Be able to meet the loan repayments
- Have a total income (before tax) of no more than $85,000 a year for individual borrowers or $130,000 a year if there are two or more borrowers
- Be a permanent New Zealand resident or citizen
- You will need to pay a Lender's Mortgage Insurance (LMI) premium of 1% of the loan account
Deposits can be gifted and you may also qualify to use your KiwiSaver savings for your deposit through a KiwiSaver Deposit Subsidy or KiwiSaver Savings Withdrawal
How much you can borrow for a Welcome Home Loan depends on where you live and varies by region. Visit the Welcome Home Loan website for full details. For more information...
New Zealand Home Loans (and Welcome Home Loans) lending criteria, terms and conditions and fees apply.