DEC 19

Buying your first home


Doing your homework makes buying your first home easy
Buying your first home is exciting; it can also be quite daunting, and for most people, it will be the biggest amount of money they will ever borrow. With the right support, it can be stress-free and straightforward. To help with the process, I’ve put together some top tips for first home buyers:

The deposit
You need to contribute some of the purchase price yourself (the deposit). Ideally, 20% of the purchase price will allow you access to interest rate discounts and cash contributions from the bank to help with moving costs.

Don’t worry if you can’t raise 20% though. Most banks are still lending up to 90% of the purchase price (some are even going to 95% for new build properties). The loan will attract extra fees and costs like a low equity margin – this is a risk management tool imposed by banks to cover any potential losses should they ever need to action a mortgagee sale. Most banks apply a margin to the interest rate, which is scaled depending on the size of your deposit (the smaller the deposit, the higher the fee). You can expect to pay anything from 0.25% to 1% higher interest than if you have a 20% deposit. Some banks just add a one-off fee to the loan or want the fee to be paid in cash. The choice of lender is very important here to minimalise the cost. However, a good mortgage broker can structure the loan to help soften the blow.

Your deposit can be made up from a variety of sources:

  1. Savings and Kiwisaver: As long as you have been contributing to Kiwisaver for 3 years, you can access the entire fund, apart from the initial $1,000 government kick-start payment.
  2. First Home Buyers Grant: If you meet the criteria, you can receive up to $20,000 (for a couple) from the government. Here’s a link to all the info: https://kaingaora.govt.nz/home-ownership/first-home-grant/
  3. Help from parents: There are a couple of options here. Mum and dad can simply gift you some money or you can use the equity that your parents have in their property. This is also known as a guarantee loan.

When you are borrowing over 80% of the purchase price, you will need to have a much stronger monthly cash surplus i.e. cash left over after all bills and debts have been paid. You will most likely require a full market valuation as well. Be aware that banks are limited to the amount of loans they can approve, which means only really strong applications will proceed. These limits don’t apply when buying a new build property.

Can you bid at auction?
The short answer is yes you can, but keep in mind that you need to have your finance 100% approved prior to the auction. This may mean obtaining a market valuation for the house you want. A valuation costs between $800 and $1,000, so you need to be confident that you’ll win the bidding battle or else it’s cash down the drain!

Be bank ready
Last month, I wrote a blog on getting yourself into the best position prior to speaking to your bank or mortgage broker, you’ll find plenty of useful information here.

What to do next?
I’m always available for a no obligation chat, please feel free to call anytime. I can talk you through the process in more detail, and if required, I can introduce you to a great lawyer and arrange a valuation (if needed). We’ll also discuss insurances, wills and obtaining the right loan structure that will work for you, fitting in with your current and future needs.

When you’re ready to step onto the first rung of the property ladder, give me a call on 027 4119255 or send me an email.