This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.
First home buyer - how much can you really afford?
Having spent hours pouring over the property magazines, and spent many evenings browsing TradeMe you've probably found a bunch of houses that you would love to call home.
One question is quite key to your house-hunting dreams, and as fun as it is to browse in dreamland you'll eventually need to find out your budget to whittle down the options to something realistic.
For first home buyers finding a home loan (mortgage) isn't easy, and chances are you don't want to waste anyone's time by asking for more information when you're still only investigating options. You'll quickly find that people are only offering fairly generic answers to your questions. If you've used a mortgage calculator you will have a rough idea but because everyone's circumstances are different you can't be 100% sure of the actual amount you'll have to play with from an online calculator.
Before we launch into a few things you can do to work out your rough budget we need to say that it's never too early to speak to a mortgage advisor. At Stephanie Murray Mortgages we speak to people that are years away from buying all the time!
WORKING OUT YOUR SPENDING POWER
Alright, so let's dive into a few things you can do to work out how much you could afford.
One of the first things any first first home buyer looking to get a mortgage needs to consider is their total income. If you're self-employed you're probably already tapping out of thinking about how much you could borrow as it's harder for you to prove a stable income. (Learn more about Self Employed home buyers here.)
That's a problem for some lenders but not all, so don't give up!
As a very rough and ready workaround take your last year's income as shown on your bank statements. If you've accepted cash payments for any jobs you'll need a way to prove these if you want them to count towards you income, a receipt or invoice would work here.
Let's take the average first home buyer income here as an example. Statistics NZ says the average NZ salary is around $45,000 a year. If you're able to buy as a couple, or in partnership with a friend that takes the total income to $90,000. People then apply a rough multiplier to get a really, really rough idea of total buying power.
That multiplier is often 5X annual combined income. So in our example the total paired income of $90,000 equates to a rough buying power of $450,000.
THE TRICKY BUSINESS
This is where things get a little trickier.
Sadly multiplying your total income doesn't really give you an accurate picture of how much you can really borrow.
Things like your credit history, how at risk your income sources are and how much cash you have left over at the end of the month and the interest rates at that moment in time can all impact the amount someone is willing to lend you.
Likewise you might actually be able to access more money than what has been estimated using this rough calculation. If you're eligible for a KiwiSaver HomeStart grant then you might get some extra money from the government. Your parents may also be able to help by using some of the equity (money they've paid off their mortgage, or the amount their house has increased in value over the years) to guarantee your loan amount.
IT'S A MARATHON, NOT A SPRINT
There are a number of ways that you can focus your financial situation to get yourself in a great position to get the best loan deal possible if you get the right advice early.
For example, if you don't have a great financial track record right now then buying a house will mean you might not get as good a deal as if you were to wait a year and change your spending habits.
This is why it's never too early to talk to a mortgage advisor. They deal with a range of banks and lenders so know which ones may be better suited to your individual needs. After all, it doesn't really matter where your mortgage comes from, so long as you're getting a good deal for you and your future plans.
Talking to an advisor before you're even ready to go to open homes means you could get a much better deal than if you wait until the very last minute.
Remember that a mortgage advisor isn't just there to get you a great mortgage rate, they're also there to work with you to get a great deal. This may mean beginning your home-buying journey before you pick up the next issue of the Property Press.