How to
How to
Buying your first home is an exciting milestone in life!
It’s crucial to understand the home buying process to make informed decisions. Here we will guide you through the steps involved in purchasing your first home in New Zealand, including an overview of the Kainga Ora “First Home” products; First Home Loan, First Home Grant, Kiwisaver First Home Withdrawal
What is Equity?
Equity refers to the difference between the value of a property and the outstanding amount of the mortgage loan. In simple terms, it is the portion of the property that you own outright. When buying your first home, you’ll need to provide a deposit, which contributes to your equity. Lenders often require a specific percentage of the property’s value as a deposit.
How Much Deposit Do You Need?
The deposit required for purchasing a home in New Zealand varies depending on several factors. Generally, a deposit of at least 20% is desirable to avoid additional costs such as Lender’s Mortgage Insurance (LMI) or a Low Equity Margin (LEM) being applied to your interest rate, however it’s possible to use as little as 5% in the right circumstances. First home buyers may also be eligible for government schemes, such as the Kainga Ora “First Home Loan” and KiwiSaver Withdrawal for first home purchase. These can help increase the deposit amount and reduce interest costs. On the other hand if you’re buying a property for investment purposes a higher LVR (loan to value ratio) of 70% is now required due to the Reserve Bank NZ requirements (though there are a few exceptions to this).
How Does The Kainga Ora KiwiSaver First Home Withdrawal Work?
There are only a few ways that you are allowed to withdraw your savings from KiwiSaver; when you are in financial hardship, at retirement age (currently 65), or when you are buying your first home. Generally speaking you can withdraw all of your KiwiSaver except for the initial government contribution of $1,000, though it’s important to realise that the amount in your KiwiSaver can fluctuate more or less depending on the type of fund you are invested in.
If you are thinking about withdrawing your KiwiSaver, it may be appropriate to talk to your financial adviser who is qualified in KiwiSaver and Investment (unfortunately Ben Konings is only currently qualified for Mortgage advice). To apply, reach out to your Kiwisaver provider and tell them that you would like to start the process – they will be able to help you. Alternatively, you can find more information about KiwiSaver First Home Withdrawal on the Kainga Ora Website.
What Is the Kainga Ora First Home Loan?
In a nutshell, the Kainga Ora First Home Loan allows you to buy your first home with as little as 5% deposit. Kainga Ora underwrite the loan to enable the bank to meet it’s responsibilities under NZ banking regulations. It’s only available at selected banks, and there are a few other nuances to take into account. If you’re interested in buying your first home with as little as 5% deposit contact us or visit the Kainga Ora First Home Loan webpage.
What Is the Kainga Ora First Home Partnership Scheme?
In the Kainga Ora First Home Partnership scheme, Kainga Ora take a share of equity in your property reducing the amount you need to borrow. Unfortunately the Kainga Ora First Home Partnership Scheme has been discontinued as of 2024.
How Does The Kainga Ora First Home Grant Work?
The Kainga Ora First Home Grant was a scheme providing additional deposit funds of $5-10,000 for buyers meeting specific criteria. Unfortunately this scheme has been discontinued as of 2024.
Calculating Your Income
To determine your eligibility for a mortgage, lenders assess your income and its stability. They consider various sources of income, such as your salary, wages, self-employment earnings, and rental income. It’s essential to provide accurate and up-to-date documentation to support your income claims. If you are paid salary or wages, your three most recent payslips will be required, however if you are self employed your most recent business accounts prepared by a chartered accountant will be required, along with your personal IR3 (income tax return). Self employed income can be tricky to deal with, as there are many nuances that we can advise on. Get in touch with us if you are having trouble with the bank and are self employed.
Affordability Assessment
Lenders also conduct an affordability assessment to ensure you can comfortably manage mortgage repayments. They consider your income, existing debts, and living expenses. It’s crucial to maintain a good credit score and manage your debts responsibly to increase your chances of obtaining a mortgage, though some non-bank lenders can be helpful if this is an issue. Generally speaking, three months of transaction statements is required to confirm household expenditure and affordability – for help downloading these statements see our guide to learn how to easily download your bank statements.
Types of Insurance to Consider
When buying a home, it’s important to protect your investment and mitigate potential risks. There are several types of insurance you should consider, including:
Home Insurance:
Covers damages to the structure and contents of your home due to unforeseen events such as fire, theft, or natural disasters. Most lenders will not give you a mortgage unless you confirm a home insurance policy is in place.
Contents Insurance:
Protects your personal belongings inside the home.
Mortgage Protection Insurance:
Mortgage Protection Insurance is an optional insurance policy that helps cover your mortgage repayments if you become unable to work due to illness, injury, or redundancy. It provides peace of mind and ensures that your home remains secure during challenging times.
Researching the Market
Before making an offer on a property, thorough research is essential. Evaluate the local property market, comparable sales, and consider working with a qualified real estate agent. Research allows you to make an informed decision and understand the property’s value.
Negotiating the Purchase Price
When making an offer, consider factors such as market conditions, the property’s condition, and your budget. Engage in negotiations with the seller or their agent to reach a mutually acceptable purchase price. It’s important to set a budget and avoid getting caught up in bidding wars that might exceed your financial capacity.
Clauses and Conditions
At this stage it’s also important to consult professionals such as your mortgage broker and solicitor (lawyer) to determine which clauses or conditions you should add to the agreement. You may need to confirm finance, obtain a builders inspection, registered valuation, sell another property, or perhaps give yourself time to do other research and due diligence. When the market is hot, it can be advantageous to use the least number of conditions as possible, however it’s important to heed the advice of your professional team as failure to do so can be financially disastrous.
A Registered Valuation
In order to receive an unconditional letter of offer from the bank, often they will require a registered valuation to confirm the value of the asset they are using to secure your home loan. Your Mortgage Broker will need to order this for you. Situations where this is generally needed include when you are buying with a low deposit (under 20%) or when it’s a new title.
LIM Report and Building Inspection
To protect your interests, it’s recommended to obtain a Land Information Memorandum (LIM) report and a professional building inspection. The LIM report provides information about the property’s zoning, potential hazards, and any consents or permits. A building inspection helps identify any structural or maintenance issues that might require attention.
Conditions (clauses)
Once you are satisfied with the property’s condition, have obtained finance approval from your lender, and completed your due diligence, you can confirm that all conditions have been met. This step signifies your commitment to purchase the property and move forward with the transaction.
Paying The Deposit
Not to be confused with your equity-deposit. In order to confirm your commitment to the sale, you will need to pay the agreed deposit to the vendor’s solicitor or trust account at this stage. Normally this is 10% of the purchase price, however it can be varied by negotiation.
Pre-settlement inspection
Before settlement day you will have the chance to perform a final inspection of the property to confirm your satisfaction with the condition. Anything that is out of order at this stage should be discussed with your solicitor / legal representative who can negotiate with the vendor.
Transfer of Title
During the settlement process, the property’s title transfers from the seller to the buyer. A solicitor or conveyancer facilitates this process, ensuring all legal requirements are met. They handle the necessary documentation and coordinate with all parties involved.
Settlement Day
On settlement day, the remaining balance of the purchase price, along with any associated costs, is paid to the seller. The property’s keys are handed over, and you officially become the owner of your first home.
Move in and Celebrate!
Congratulations, you’ve done it! Now it’s time to have a customary fish & chip and champagne dinner on the living room floor before the moving truck arrives with all of your furniture.
1. Can I buy a home in New Zealand with less than a 20% deposit?
Yes, it is possible to buy a home with a deposit of less than 20% – as little as 5% is possible. However, it may result in additional costs such as Lender’s Mortgage Insurance (LMI) and you will usually pay a higher interest rate. If you’re in this situation there are multiple factors you need to consider such as using your Kiwisaver and the Government’s first home grant. Give us a call today if you want to be a low deposit home buyer.
2. What is the Kainga Ora “First Home Loan”?
The First Home Loan is a government scheme that provides financial assistance to eligible first-time home buyers with a low deposit (5-20%) by underwriting the lending provided by a main retail bank.
Low Equity Margins can add between 0.25% – 1.5% for these buyers, adding thousands of dollars of added cost over the life of a loan.
In practice, the “First Home Loan” makes repayments cheaper for first home buyers with less than 20% deposit.
3. How long does the settlement process usually take?
After a loan is approved, the settlement process can take up to 2-3 weeks. During this time, you’ll need to discuss your loan structure and repayments with your mortgage adviser, set up new accounts (if not already a customer at the bank), and complete AML/Tax Declaration forms.
The specific settlement date is negotiable between parties, and it is strongly recommended to discuss potential dates with your solicitor before signing.
4. Do I need a solicitor or conveyancer for the settlement process?
Having a solicitor or conveyancer is required whenever a sale and purchase agreement is in play. One bank (Kiwibank) does have a ‘free refinance’ option we can use which is great as it saves on lawyer’s fees. However this does have some limitations.
5. What happens if there are issues with the property’s title during settlement?
If there are issues with the property’s title, your solicitor or conveyancer will guide you through the necessary steps to resolve them before completing the settlement.
