HOW CAN I BUY MY VERY FIRST HOME?
Our customers often tell us that the biggest challenge they face is getting enough of a deposit to purchase their very first home. However, saving that magical 20% deposit can be really daunting, especially when you’re also paying rent! This is forcing first home buyers to consider buying a home with someone else; seeking help from family/friends to get that initial deposit together; or taking advantage of several financing options designed to help in this situation. That’s where our expertise comes in – we know every angle that can be assessed and can tell you quickly if you’d qualify for a mortgage. Let’s start by looking at some options …
HOW MUCH WILL THE BANK LEND ME?
This depends entirely on a wide range of factors and varies from lender to lender. Ultimately the maximum mortgage amount most lenders will approve is a calculation that considers …
- your total taxable Income (including regular overtime, shift allowances, bonuses, etc.)
- any other liabilities, debts, H/P, student loans or credit card repayments you need to make
- your day-to-day living expenses including food, utilities, school costs, petrol, insurance, etc.
- the amount you have left over to service (repay) the proposed mortgage
The other important factor is how much of a Deposit you have towards your new home. This might also include...
- Cash, savings, term investments, shares
- Kiwisaver and/or Kiwisaver subsidy
- Guarantee using your parent’s equity in their family home
In broad terms, most Banks will lend up to 90% of a home’s market value to selected clients, subject to a number of qualifying conditions. The good thing is that we know what they are!
CAN I USE MY KIWISAVER BALANCE?
If you’ve been making payments to your Kiwisaver account, you are eligible to withdraw after 3 years of continuous contributions. You can withdraw all savings minus the original $1,000 Government contribution. At this stage, you may only withdraw your Kiwisaver balance for your ‘First Home’, so that excludes investment/rental properties at present. In some cases, you might also qualify for a ‘second chance’ withdrawal but it’s probably best to chat with one of our friendly Advisors to see if this applies to you.
COULD A KIWISAVER SUBSIDY HELP?
This is a grant that is separate to what you have saved in your personal Kiwisaver account. The amount depends on how long you have contributed to Kiwisaver, with a maximum of $10,000 …
ie: 3 years is $3,000 for an existing home, or $ 6,000 for a new build
4 years is $4,000 for an existing home, or $ 8,000 for a new build
5 years is $5,000 for an existing home, or $10,000 for a new build
There are a number of qualifying conditions that must be met to be eligible for these subsidies including an income cap of $130,000 combined or $85,000 for an individual; purchase price caps apply in every area; and the property being purchased must be your ‘First Home’ that will be occupied by you.
FIRST HOME LOANS
These were formerly called ‘Welcome Home Loans’ and are available through selected banks and other lenders. They are now under-written by Kainga Ora. These allow the lender to provide loans that would otherwise sit outside their lending standards.
The team at SMM have helped dozens of first home buyers into properties using these targeted loans, so if you’d like more information just book a FREE chat with one of our friendly team.
CAN I BUY A HOME WITH SOMEONE ELSE?
This is becoming an increasingly popular option for buyers to effectively pool their resources with someone else – perhaps a family member or very close friend. Sometimes called ‘Group Buying’ this option is a way for individuals who may not qualify for a mortgage on their own to combine their deposits and incomes for the purposes of buying a jointly owned property.
Caution needs to be exercised with this method of property purchase though. What happens if you fall out of favour with your friend, or Aunt Mary suddenly needs her money back for an operation? The dilemma with this type of multi-ownership buying option is in trying to ‘unwind’ them if anything goes wrong after purchase. Imagine having to sell your home if one of the parties wants to exit the arrangement – you could easily lose money and forfeit some of the first home buyer subsidies outlined above.
These can sometimes be used to make up some or all of your 20% deposit, so be kind to your mum and dad! In general terms, your parents need to have plenty of ‘equity’ in their own residential home, or possibly a rental property | holiday home | farm, etc. By obtaining a linking Guarantee from mum and dad, the lender is often able to rely another property* to increase the value of their overall security.
(* Note: both parents and borrower would need to be with the same Bank)
You can still use your personal savings and/or Kiwisaver balance and combine this with a parental Guarantee.
However there are some restrictions around Guarantees, with major lenders now required to abide by a ‘Responsible Lending Code’ and they are unlikely to approve a Guarantee if this might place your parents in a vulnerable financial position.
GIFTS AND THE BANK OF MUM & DAD
Every parent wants to help their kids get into a first home if possible, and ‘gifts’ are a very common way of helping with the deposit. However many borrowers get confused between a ‘gift’ and a ‘loan’ and it’s critical to determine the difference between the two!
A ‘gift’ from Mum & Dad (or Aunt Mary) needs to be non-repayable and non-interest bearing. This arrangement is usually required to be clearly documented by way of a Gifting Certificate so the Bank can validate the arrangement. Requirements vary greatly from lender to lender, and some may accept “repayment on sale” in rare cases.
A ‘loan’ from parents is quite different from a gift and are not always acceptable with some lenders. Full documentation would need to be provided outlining the interest rate and repayment terms, and of course this would need to be factored into the total debt servicing calculation.
IS BUILDING A NEW HOME A BETTER OPTION?
The government is very keen to encourage more housing stock in the market following the collapse of the original Kiwibuild scheme in 2019. To assist in this objective, additional incentives are available to first home buyers who wish to build a new dwelling.
New builds are exempt from many of the Reserve Bank’s LVR (loan to value ratio) restrictions placed on major lenders. This can make it far easier to get 90% of the property’s final value approved for your mortgage – 80% to purchase the land upfront and then 90% upon invoice for progressive drawdowns. Once again, there are purchase price thresholds for every region and you could also be eligible for double the subsidy/grants available.
This option is not as scary and confusing as you may think, and we’re finding more and more first home buyers who are choosing to build a new home rather than an existing property.
The ‘First Home Buyer’ segment is probably our favourite and even after helping hundreds of customers into a first home, we still get a real buzz and huge sense of satisfaction as we turn dreams into reality!
There are so many options available to first home buyers right now, and we specialise in finding the right option for you. No two borrowers are the same, so we take our time to carefully assess your individual circumstances and provide tailored recommendations that best suit our clients.
Our friendly team of Mortgage Advisors at SMM are presenting a “Summer Seminar Series” at various locations around the country specifically for First Home Buyers. You can register your interest by clicking below or better still, book a FREE chat with one of our Advisors closest to you.