What You Need To Know Before Buying Your First Home?

Why do you want to buy your first home?

Homeownership has deep roots in our country, and there are countless reasons why Kiwis have this strong desire to buy and own a home.

When we assist first home buyer clients, we notice that biggest motivation is simply the desire to own the roof over our heads. To have a space that is ours.

The second biggest reason is too expensive to rent or the rent expenses are not much less than paying a mortgage anyway, especially when the current mortgage rates hit the historical low which keeps repayment more affordable or give us the opportunity to pay it off quicker. Is there anything more frustrating than seeing hundreds of dollars funnelled out of your bank account each week going to line someone else's pocket?

Other good reasons to buy a house:

- Your home will not be taken away from you (provided you keep paying the mortgage)

- Safety net when retired and something to leave for our kids

- Freedom to personalise your place 

- Kids have access to good education and well being

- A job-related relocation or move

- A change in family situation

- A desire to be closer to family, friends, and relatives.

Why it’s so important to ask yourself this question – why do I want to own a home?

To make homeownership a reality in NZ takes discipline and sacrifice. If you're a lifelong renter, you don't have to worry about pulling together hundreds of thousands of dollars for a deposit. You could travel, buy a new car, have more social life, take more family holidays, and look out for other investment opportunities, maybe even your own business. You can probably also afford to live in a better area when you are renting than you could if you bought.

However, because of our main motivations, we stay persistent and disciplined. If you’re looking to become a homeowner, what is your main motivation?

Have you done any research and define your perfect home - what is your budget, property location, home type, number of bedrooms, how big is the section, school zones, transport and amenities. There are so many things to consider when buying your first house but it’s near impossible to find the perfect one. Therefore, once you come up with the list, prioritise them, e.g., you may end up being flexible on land size and property style, to get the location and floor area you want. The clearer the outlook, the easier and quicker to find the best matching home.

Please also consider what your plans are for the next five years? For example, are you looking to have a family while you live in your first home? Are you looking to buy an investment property? As your trusted advisor, the more we know about your motivation and plans, the easier we can find the best solution for you.

House deposit NZ

When it comes to home loans, there are two main factors that drive lender’s decision – the deposit you can contribute towards the purchase, and your ability to meet the loan repayment during the loan terms (generally between 25 – 30 years).

Let’s first look at what the acceptable house deposit options in New Zealand are. You may choose to use a combination of all house deposit options.

• Savings

Every time you get paid, create the discipline of putting a portion into a savings account. This is also important, as once you start paying a mortgage, you don’t feel as much burden to keep the mortgage repayment.

If you apply for a low deposit home loans, lenders normally require you to have at least 5% deposit from your savings, rather than all being gifted to demonstrate you have the capacity and discipline to manage your money.

• Gifting
• KiwiSaver withdraw
• Family member equity loans

The deposit can come from family gifting. However, banks normally require a signed letter by the person(s) gifting the money certifying the funds are unconditional, no interest-bearing, non-repayable, and non-refundable.

Once you’ve been a KiwiSaver member for at least three years, you may be ableto use your KiwiSaver savings to help you buy your first home. For eligibility and process, please check FAQ under Fist Home Buyer category.

Some lenders (not all) would allow you to use the equity in your family member’s property as your deposit. This portion will be in your and your family member’s joint names, and they only guarantee this portion of the home loan. You will be solely responsible for the balance of the other 80%.

The joint portion is for short-term, so you can pay it back sooner. The family member should see their obligation is discharged once your equity exceeds 20 percent, or the portion they guaranteed is paid off.

Please note, to become a guarantor, your family member must meet standard home loan lending criteria, as they are responsible for repaying the loan they guaranteed if you cannot meet your repayments

We recommend you and your family member(s) each seek independent legal advice when considering this option, so you all understand the risks and ramifications of signing a guarantee.

• Government assistance - KiwiSaver HomeStart Grant

If you’re in KiwiSaver, you might qualify for a first home grant of up to $5000 or $10,000 for a couple who both qualify. If you’re buying a new-built house or building a new house, you are eligible for $2000 per year you have been in KiwiSaver, up to $10,000 or $20,000 if you’re buying with another person.

You could also be eligible for a Welcome Home Loan, which is a low-deposit loan underwritten by Housing New Zealand.

• Sale proceeds of assets, e.g., car, house, jewellery
• Inherited cash

When it comes to how much deposit you need to buy a house in New Zealand, you generally need at least 20% for your family home, or 30% for an investment property. If your deposit is lower than the preferred percentage, your Prosperity Finance advisor still have a solution for you depending on your situations. Please contact us to get a personalized solution.  

How much can I borrow for a home loan?

Although the lender takes your property as security (called mortgage), they hate to see you stuck with loan payment in arrears and your property has to be forced sale at Mortgagee Sale auction. They don't want to throw people out of their homes unless there is no alternative to recover the money they lend to you. Therefore, your ability to meet the loan repayment during the loan terms (generally between 25 – 30 years) is critical.

The fixed payments (mortgage repayments plus any other repayments) should be no more than 30–40% of our gross income.

First home buyers often ask: "How much can I borrow?"

When we work with you, we help you work out more accurate figures by considering all your incomes (job incomes, rental incomes, flatmate payments etc) and spending (food, clothing, council rates, insurance, utilities, petrol, child care, entertainments and subscriptions etc), and any existing financial commitments (credit cards, car loan, HP, student loans etc). 

Not all lenders use the same method to work this out, therefore can give you quite a different outcome. At Prosperity Finance, we will help you navigate all options.

The amount you can borrow, plus your deposit dictate the property budget. You may also need to adjust your property feature list to make sure you can find the property you love within budget. 

How do banks work our your borrowing capacity?

When banks calculate your borrow power - how much you can borrow for mortgage? They take many factors into consideration:

• Income and spending
• Have excellent credit history
• The proportion of deposit from savings (minimum 5% but the more the better)
• Have excellent account conduct (no unauthorised overdrafts, dishonours)
• Steady employment history and income

Process of buying a house in New Zealand

How to a buy a house in New Zealand? For most people looking to buy a first home in New Zealand, the process of buying a house may be complicated. Here is our step-by-step house buying guide:

1. Book a discovery session with Prosperity Finance Advisor to discuss your plans and current situation so we can provide you with a solution plan, free.
2. We help you obtain a Pre-Approval on your behalf.
3. House hunting – the fun part begins!
4. Placing an offer by signing a Property Sale and Purchase Agreement
5. If the offer is accepted by the vendor, you pay a deposit (5% -10%) as agreed on the Sale and Purchase Agreement. At the same time, we help you meet all finance conditions.
6. We work with you to find the best loan structure and interest rate strategy
7. We negotiate on your behalf to get the best interest rates and cash back (if applicable) and lock the rates. At this stage, we will also discuss your insurance needs.
8. We instruct the lender to issue loan documents and arrange loan account opening process.
9. Once the loan documents arrived at your suitor’s inbox, your solicitor will arrange an appointment for you to sign the documents and answer any questions you may have.
10. We remind you to conduct pre-settlement inspection a couple of days ahead of property settlement to make sure all chattels are working properly
11. Before settlement, you send any remaining deposit funds to your solicitor to complete the settlement.
12. Finally, it’s your BIG day – settlement day! Your solicitor will handle the transfer of funds, title register and mortgage on this date, and we stay alert and work with your solicitor if he/she has any questions. Once settled, you will be handed the key and can move in.
13. We will follow up with the lender to make sure your cash back incentive is paid within a week and another follow up at one month after settlement to make sure the 1^st payment is okay.
14. We will keep in touch and provide you with the opportunity twice a year for loan review to ensure the loan structure still meet your circumstances.

Your Solicitor’s Role

Finding the right solicitor is an important part of the buying process. At Prosperity Finance, we recommend that you seek independent legal advice even before you are applying for loan approval. 

We’ve seen too many people work with a solicitor after signing a Sale and Purchase Agreement and later they regret it. Remember, get your solicitor’s advice before signing anything.

Your solicitor can help you in these areas:

• Provide advice on the property ownership structure
• Check property reports, such as Land Information Memorandums (Council LIM reports) and titles
• Check the Sale and Purchase Agreement to protect your interests
• Assist you with arranging Kiwisaver withdraw and KiwiSaver HomeStar grant (if applicable)
• Manage settlement process on the purchase – arrange for full funds to complete settlement, change ownership and registration of mortgagee with the land Transfer Office
• If you don’t have a good solicitor, we are more than happy to help you connect with a good one who is experienced and can look after you well.