The Deposit on Your First Home
When thinking about getting a mortgage, the first item on your to-do list should be a deposit. To satisfy most mortgage providers, you need a deposit of at least 20% of the price of the house. There are exceptions to this rule, such as the government’s First Home Loan, available to first time home buyers.
Generally speaking, the bigger your deposit, the more likely you are to save in interest payments over the life of the mortgage. This is because loans for more than 80% of a property’s value usually have higher interest rates as they are a higher risk for the lender.
If the quoted mortgage repayments are close to what you’re currently paying in rent, you’ll have a good idea of whether you’ll be able to cope with the payments. Hint: If your rent is lower than what you’re likely to be paying in mortgage repayments, it is a good idea to regularly put the difference into a savings account. That can prepare you for the change, as well as show the lender you’re able to meet your repayment obligations.
First Home Loan
Unfortunately for many people, saving a 20% deposit for a first home is simply an impossibility. That’s why the government developed First Home Loan, which enables eligible people to qualify for a mortgage with only a 5% deposit.
A First Home Loan is issued by selected lenders and underwritten by the government agency, Kāinga Ora – Homes and Communities. It gives lenders the ability to offer loans which would normally fall outside of their lending criteria.
As of April 2020 the lenders offering a First Home Loan are Westpac, TSB, Kiwibank, NZCU Employees, The Co-operative Bank, SBS Bank, NZCU Baywide, Nelson Building Society and NZ Home Loans.
To be eligible to apply for a first home loan, you need to meet the following criteria:
- A maximum annual income of $85,000 (before tax) for one person or a combined maximum annual income of $130,000 (before tax) for two or more people.
- A minimum of 5% of the purchase price of the house you plan to buy. The price of the house must be less than the regional house price cap set by the First Home Loan scheme.
- You must either be a first home buyer or a previous homeowner in a similar financial position to a typical first home buyer.
- You must be planning to live in the home you buy. A First Home Loan may not be used for an investment property.
First Home Grant
If you have been contributing to a KiwiSaver scheme for at least three years, you could be eligible for a First Home Grant, where the government contributes up to $5,000 towards an older, existing home or $10,000 towards a newly built home. If you are buying with another person who is eligible for a First Home Grant, you may combine the grants if you have both contributed to KiwiSaver for at least five years and you both meet the eligibility criteria as well as regional house price caps.
First Home Grants are split into two types:
- Those wishing to purchase an existing home may be eligible for a grant of between $3,000 and $5,000, based on $1,000 each year of KiwiSaver membership
- For those wishing to purchase a new home or to buy land on which to build a new home, a grant may be available for $2,000 per year of KiwiSaver membership, to a maximum of $10,000 for five years for each member.
Regardless of the number of eligible purchasers, the maximum grant amounts available for the purchase of a single dwelling is $10,000 for an existing property and $20,000 for a new property.
To be eligible for a First Home Grant you must meet the following criteria:
- Have been a KiwiSaver contributor for at least three years.
- Purchasing or building your first home. Note: Previous homeowners may still be eligible for a First Home Grant if Housing New Zealand determines you to be in the same financial position as a first home buyer.
- Have a household income of less than $85,000 per annum for one person or $130,000 per year for two or more people, before tax.
- Have a deposit of at least 10% of the purchase price, including any grant money.
- Plan to live in the house for at least six months from the settlement, for an existing house, or from completion of a new house.
KiwiSaver First-Home Withdrawal
As well as a First Home Grant, you may be eligible for a KiwiSaver First-Home Withdrawal, where you withdraw almost all the money in your KiwiSaver account to help buy your new home. The grants are administered by Housing New Zealand and are paid to your solicitor.
Changes to the KiwiSaver First-Home Withdrawal were introduced on 1 April 2015. The changes enable eligible KiwiSaver members to withdraw their KiwiSaver contributions, including tax credits, to help finance their first home, as long as at least $1,000 remains in the KiwiSaver account.
Kiwibuild, the government initiative aimed at increasing housing affordability throughout New Zealand, is overseen by Kāinga Ora – Homes and Communities.
When considering whether a KiwiBuild home might be right for you, start with these steps:
1. Check your eligibility
- Be a New Zealand Citizen, Permanent Resident or a Resident Visa holder
- Be a first-home buyer or a previous home owner who no longer owns a home and meets all the other criteria
- Have an annual income of less than $120,000 to buy on your own or an annual combined income of less than $180,000 to purchase with two or more people
- Intend to live in the home for at least one year for a studio or one-bedroom home or three years for a two-bedroom or larger home
2. Find the right home
KiwiBuild offers several different home styles and types throughout New Zealand. The variety of homes available range from apartments to duplexes to stand-alone houses. Your individual needs, location and abilities will determine which type of home is right for you.
3. Prepare yourself for purchase
Once you have found a home you would like to buy, you will need to get your application sorted and prepare your eligibility documents. Even if you have already entered a conditional sales agreement with an agent, you will need to prepare your application to prove you’re eligible for a KiwiBuild home.
4. Buy your new home
Just like buying any home, you will need to prove to a lender you can meet your mortgage obligations as well as have a suitable deposit. This is where the First Home Loan, First Home Grant and the KiwiSaver First-Home Withdrawal might come into play.
The process of buying a home can be a stressful process at the best of times. However, by knowing your options, learning what you need to do and listening to advice and guidance from the agent or propery developer and Kāinga Ora – Homes and Communities, it is possible to become a happy Kiwi homeowner.
We’ve tried to include all the key points here but if you are interested in any of the government schemes to assist new home owners you should check all the details at the Kāinga Ora – Homes and Communities website.