Taking the plunge as a First Home Buyer
Looking to buy your first home? Congratulations! There’s is a lot to take in when you start out, so here is an overview of some key things to consider when you’re buying property. Contact me to get more information and find out how I can help you get into your new home.
Your deposit. Have you got enough?
Now’s the time to think about how much you want to spend and start a savings plan to reach the deposit you need. The ultimate goal is to save 20% of the property value. It’s ok to feel like that’s out of reach, it’s a daunting figure. But don’t be put off, some banks will lend up to 90% of the property value, meaning you might only need to save 10% for the deposit.
Your borrowing capacity. How much can you borrow?
The maximum amount you can borrow is called your borrowing capacity. Borrowing calculators will give you an idea of what you can borrow, but I can work out your actual borrowing capacity based on your income and debt. You can maximise the amount you borrow by paying off debt, reducing your expenditure and staying on top of your finances.
Are you maximising your KiwiSaver?
KiwiSaver is a voluntary work-based savings scheme designed to utilise the existing PAYE (pay as you earn) tax system. KiwiSaver includes a first home deposit subsidy which, after three years of saving, provides a first home deposit subsidy of $1,000 per year, up to a maximum of $5,000.
Don’t forget you might need Lenders Mortgage Insurance (LMI)
Loans over 80% of the property value attract a one-off fee called LMI, which insures the bank against a default on your loan repayments. The fee depends on the percentage of your deposit – so the more you can save, the less you will pay in LMI.
Finding the right loan for you
Some banks offer loans especially for first home buyers, with ‘honeymoon’ interest rates and options for your family to help you too. I have access New Zealand’s widest range of lenders and can help you compare what’s on offer.
Don’t go it alone
If Mum, Dad or your siblings own property, they might be able to help you secure your dream home. Some banks offer a family pledge where an immediate family member can pledge equity from their own property towards your deposit. Another option is asking a family member act as guarantor on the loan – they offer their property as security for part of the home loan (usually around 20%). You can buy your home sooner, and avoid paying LMI.
Get pre-approved and get shopping
Ready to start house hunting? A formal pre-approval from me takes into account your income, debts and credit history as well as any mortgage insurance you’ll need to pay if you’re borrowing more than 80% of the value of the property. Your pre-approval generally lasts three to six months, assuming your financials stay the same. You can shop confidently knowing your limit and having a green light when you find the one.
You’ve made an offer. What next?
Once you’ve found the right home, I’ll get formal approval for the sale from the lender. The lender will value the property, process your application and make a final credit assessment. This is when your deposit will be due. Once your approval is confirmed, you’ll receive the final documents for you (and your legal adviser) to review and sign.
Settlement is the formal exchange of money and titles. On your settlement date you’ll be able to collect the keys and start the big move.
Tags: borrowing capacity, first home buyer, kiwisaver, LMI