The ultimate first home buyers guide
Many Kiwis dream of a place they can call their own, but the thought of stepping onto the property ladder can also be quite daunting. We have compiled the ultimate first home buyers guide that will help you get started, learn about the requirements you need to meet, things to consider and steps to take to make the dream of owning your own home come true.
Getting started
Before you start your home-buying journey, getting in touch with a mortgage advisor is a great way to get an idea of what you want and what support is available to you. Mortgage advisors such as the friendly team at Boost Brokers not only provide no-obligation services, they also have access to a wide range of banks and lenders, making sure you get the best deal in town.
They can help you decide what kind of property you are looking for and set yourself realistic expectations. Do you really need a 5-bedroom mansion in the country or would a townhouse be more reasonable and affordable? There is no point in owning your own home if your finances cannot keep up.
Depending on your situation, a mortgage broker will also help you consider factors including public transport routes, shops and schools within walking distance or the potential to rent out your home at a later stage. Here at Boost Brokers, we will guide you through the home loan application process in 6 simple steps.
1. Establish a client relationship
Whether in person, over the phone or virtually, your journey into your own home begins with a chat where we can get to know you and find out how we can help you. We will discuss your current situation, your finances and your goals. At the same time, this is your opportunity to ask as many questions as you need and consider your options.
2. Gather data
After our initial conversations, it is your turn to collect all the necessary documents needed to get your application started. This includes photo identification, proof of your financial situation such as payslips, bank statements and hire purchase documents, details of how you are going to make your deposit and any other financial liabilities. We will explain which documents are necessary depending on your situation and what they are being used for.
3. Analyze and evaluate
Using the documents you have provided, it is time to complete your home loan application. We will also seek pre-approval from the banks to get a better idea of how much you are actually allowed to borrow based on your financial situation. In some cases, banks may require further information or might get back and ask you to sort out any potential issues.
4. Present recommendations
Based on your specific situation, we will shortlist mortgage deals that best meet your needs and fit your criteria. We consider which type of home you are looking for, whether it is a town house, an apartment or a new-build, the size of your deposit and your credit history. We also actively search for special home loan offers with the best interest rates, little upfront fees and mortgage terms that fit your goals and your budget.
5. Implement
Once you have an overview of which offers are available to you, it is up to you to decide which one suits you best. Once you have made your choice, we will help you implement this decision and complete the actual application so you can start looking at properties with confidence.
6. Monitor and review
Our team will monitor and manage your mortgage for you, taking care of necessary paperwork so you can focus on moving into and enjoying your new home. We will also check and review your mortgage on a regular basis to ensure the terms you have chosen are still working for you. If not, we can help you change, transfer or alter your mortgage to your satisfaction.
1. The planning stage
While you can consult a mortgage broker at any time during your home-buying-journey, there are several other steps to consider in the early days. The most important ones are planning, budgeting and saving. It is not only important to know how much you could borrow. You also need to add up the costs of purchasing a house including mortgage repayments, legal fees and insurance costs. Having a clear figure in mind will help you realise where exactly you are in the home buying process and how much time, money and effort you have to put in to reach your goal.
Saving for a deposit
Traditionally, first home buyers are required to have a 20% deposit, meaning a house worth $600,000 would need a deposit of at least $120,000. However, some banks and lenders do offer home loans with as little as 10% or 5% deposits, meaning you could contribute as little as $30,000 from your own pocket and borrow the rest. Keep in mind, though, that charges and interest rates usually increase when having a lower deposit, because there is a greater risk involved for financial institutions.
In addition to your own money, there are several grants and schemes you may qualify for. Another way to increase your deposit is by using cash gifts from friends or family. All they need to do is sign a gifting certificate stating where the money came from and that it does not need to be repaid. An alternative is to have friends or family as guarantors for parts or the entire amount of your loan. There are extra complications with gifting a deposit or having someone as a guarantor so its important to understand those complications early on in the process.
KiwiSaver First-Home withdrawal
Members of any KiwiSaver scheme may withdraw some or all of their savings to put towards the deposit for a house. However, at least $1,000 needs to remain in the KiwiSaver account and you cannot withdraw money received from an Australian complying superannuation fund. The application generally goes through the KiwiSaver provider with monies being paid to your solicitor on or prior to the settlement date.
You may be eligible if:
- You have been a member of KiwiSaver for at least 3 years
- You are a first-time property or land owner
- The property or land you are purchasing is in New Zealand
- You are going to live in the house you purchase or are building
- You have never withdrawn money from your KiwiSaver account towards a house or land purchase
The first-home withdrawal is also available for previous homeowners who meet the following criteria:
- You have not previously withdrawn KiwiSaver funds to purchase a home
- You have been a member of KiwiSaver for at least 3 years
- You no longer hold interest or shares in a property (excludes Māori land ownership)
- Your realisable assets are less than 20% of the house price caps for existing properties in your area
First Home Grant Scheme
Managed by Kāinga Ora – Homes and Communities, the First Home Grant is a scheme directed at first-time home buyers and previous home owners who have been making regular KiwiSaver contributions for at least 3 years. You can either gain a pre-approval before you start looking for a property to have more certainty as to how much you could borrow, or a grant approval once you have found a property and signed the sale and purchase agreement.
Buying an existing home – receive $1,000 for each of the 3 or more years you have contributed into KiwiSaver up to $5,000 for 5 years.
Buying a new home or land – receive $2,000 for each of the 3 or more years you have contributed into KiwiSaver up to $10,000 for 5 years.
You may be eligible if you:
- are over 18 years of age
- have had an income that fits the current income caps (these change regularly so ask us for latest figures)
- do not currently own property (excludes ownership of Māori land)
- have regularly been contributing at least 3% of your total income or 3% of the adult minimum wage based on a 40-hour week to KiwiSaver for at least 3 years
- purchase a property within regional house price caps
- agree to live in the house for at least 6 months
- have a deposit of at least 5% genuine savings of the purchasing price
If you borrow with someone else and both parties have been contributing to KiwiSaver for at least 5 years, you can combine your first home buyer grants and potentially get up to $20,000 towards your first home.
KiwiBuild
This government scheme is designed to build affordable housing for Kiwi first home buyers.
You may be eligible if you and potential co-applicants:
- are at least 18 years of age at the time of applying for pre-qualification
- are NZ citizen, permanent residents or resident visa holders
- do not have a current legal or beneficial interest in a home in New Zealand or overseas
- have a total income before tax of no more than $120,000 for a single applicant or $180,000 for more than one applicant
- intend to live in the home for a specified minimum ownership period
Budgeting
Once you know how much you need to save, set yourself a budget that helps you reach that target faster and stick to it. Look at which expenses you can do without for a while such as subscriptions, takeaways and eating out. Cutting down on non-essential costs while you save for your dream home might sound hard, but it will definitely be worth it in the long run. You can also save regular amounts by setting up automated payments into an account that you cannot touch for the time being or into your KiwiSaver account – if you are eligible for the first home withdrawal.
Make sure you clear any consumer debt before applying for a home loan as this will have a negative impact on your credit score. Paying off outstanding fines and keeping an eye on your discretionary spending will also help get you closer to your dream home.
2. The buying stage
Once you have put your finances in order, you can start looking at properties. During this stage, there are a lot of extra steps to be considered to ensure that at the end of your journey, you will end up with a house or property that you are happy with.
Types of property sales
It is important to understand the different kinds of property sales you may encounter and how they will affect your payments as well as the likelihood of getting the house that you want.
Auction – Potential buyers bid at a specified time and place until the top bid is reached.
PRO: You know exactly what others are willing to pay.
CON: Price can rise significantly above value if multiple parties are determined to purchase. House needs to be purchased unconditionally and deposit is usually due right after the auction.
Price by Negotiation – Your offer is a legal contract that includes your details, the price you are willing to pay as well as any potential conditions such as necessary repairs or the approval of your loan before the sale can take place.
PRO: More flexibility and less on-the-spot competition.
CON: You don’t know where you are in regards to the competition.
Sale by Tender – Potential buyers put in a written offer or tender before the deadline is reached. The seller then receives all offers at once and decides if and whom to sell to.
PRO & CON: similar to price by negotiation
Deadline Sale – Similar to tender, but potential buyers have the chance to negotiate prior to the deadline.
PRO/CON: similar to price by negotiation
Private Sale – Potential buyers and the seller negotiate without the help of a real estate agent.
PRO: You can understand the seller’s needs better and negotiate directly.
CON: Uncertainty whether legal obligations are being met.
House & Land Package – Buyer signs a contract to build a house for a fixed price.
PRO: You usually receive better value for your money.
CON: Less flexibility depending on requirements set out by the building company.
Builder’s and LIM reports
Just like when you are buying a car, unless you are an expert, you may not spot underlying issues with a building and end up paying more in the long run for hidden damages or unexpected repairs. Qualified builders can identify any such problem with the property before you decide to purchase, while a Land Information Memorandum (LIM) through the local council informs you about possible issues with the land the house is built on including drainage or landslip risks.
Conveyancing
We highly recommend finding a lawyer or conveyancer early on as things can start moving really fast once you start your home-buying journey. Both lawyers and conveyancers deal with property transactions of any kind, including the transfer of legal title to real property from one person to another. Fees for legal services may vary, so it pays to shop around.
Registered Valuation
To find out whether the price you are offering on a property is fair and reasonable, you can get a property valuer to assess the value of the land and buildings from an objective point of view. Property valuations are often part of a bank’s approval system before they finally agree to set up your loan.
3. Legal stuff
Sales agreements can be hard to understand, so having those checked out by a lawyer is an absolute must. After all, purchasing your first home will most likely be the biggest financial commitment you have ever made. Make sure you have a lawyer that you are comfortable with before signing any legal documents.
Types of home ownership
It helps to understand the various types of home ownership that you may stumble across on your journey as these come with a range of implications.
Fee simple (Freehold) – The most common form of private land ownership in New Zealand, this title is free of any claims.
PRO: You can sell or pass the property on to anyone you choose. You can mortgage the land and make any changes as long as they comply with legal requirements including local planning and resource management acts.
CON: Other forms of restrictions such as covenants or easements may apply.
Leasehold – While you own the buildings on the land, you still need to purchase the right to lease or rent the land from the land owner.
PRO: Purchase price may be more affordable as you are only buying the house.
CON: Lease is for a specified period only and prices may increase over time, making it harder to sell the house later. There may also be restrictions as to how the land can be used.
Cross-Lease – 2 or more people own the same piece of freehold land. Traditionally these properties have more than one dwelling all parties involved lease the use of these from each other.
PRO: You get the right of exclusive use of your property.
CON: You often have to get permission from all owners before making alterations to your home.
Unit title – A group of properties is held on a single piece of land with shared facilities such as driveways. If the title involves a freehold, you also own an allocated piece of land underneath the development. On the other hand, if the title involves a leasehold, you will need to pay a ground rent to the landowner. Unit titles also mean you become part of the body corporate which manages the shared facilities and have to pay annual body fees to help with maintenance and upkeep.
Insurance
When you borrow money to secure your first home, you are most likely required by your lender to take out a range of insurances to protect your asset. The most common ones are house, content and mortgage insurances. You may also consider life insurance to help loved ones cover any costs in case of an emergency.
4. Loan types
Knowing how much you can borrow is only part of the research. Working out mortgage repayments with different loan settings will further help you determine what financial situation you will be in once you have purchased your first home. Mortgage repayments can vary a lot compared to what you are currently paying in rent, so playing around with the length of your mortgage and interest rates will give you a much better picture.
There are several types of mortgages with different requirements and terms. You are able to find a mixture of the facilities below.
Table loan – Most lenders let you choose a term of up to 30 years. Earlier payments usually decrease the interest while later payments are dedicated to the actual amount you borrowed. Table loans come with fixed or floating interest ranges. PRO: Regular payments and a pre-set date when the loan is paid off provide certainty. CON: If your income is irregular, making set payments may be difficult.
Revolving credit loan – More like a giant overdraft, your mortgage account will be used for wage and all other income payments as well as your outgoing bills. Interest is calculated daily, so keeping the loan as low as possible will mean you pay less. PRO: Lump-sum payments enable you to pay off your mortgage faster. No set payments is also easier for people with irregular incomes. CON: Requires more discipline as you can make withdrawals up to a specified limit at any time, potentially keeping you in debt longer.
Offset loan – Your home loan is linked to everyday or savings accounts with interest being calculated daily. PRO: There is no fixed term and you pay less interest because your existing funds and savings from all linked accounts are being offset against your loan amount. CON: Linked accounts will not earn any interest while being offset against the loan. However, because interest on debt is usually higher than the interest earned on savings, the offset is usually worthwhile.
When it comes to paying off your mortgage, we highly recommend making as many payments as you can. Putting extra money back on your mortgage account whenever you can and staying on top of minimum payments will not only help you pay off your mortgage faster. You will also end up saving money in the long run as the interest payments will reduce faster.
5. Ongoing
Once you have secured your own home and know your mortgage repayments, it is time to look into ongoing costs and adjust your budget to that of a homeowner. If you have used a mortgage broker, they will also keep an eye on your mortgage for you and contact you if better deals become available.
Equity
The difference between the market value of your property and the amount you are still owing on it is called home equity. The more your house is worth compared to what’s left of your mortgage, the higher your home equity will be. If you are planning on topping up your mortgage or taking out another loan, you will need at least 20% home equity.
As your mortgage advisor, Boost Brokers will monitor fixed rates for loan offers and get in touch with you to discuss your options. We also advise you to keep an eye on your Kiwisaver in case you are planning to top up your mortgage or take out a new one.
Moving-in costs
Once you have your settlement date, it’s time to prepare for the big move. Consider saving in advance for a moving service or truck, connecting utilities including phone, power and internet, having your mail redirected and potentially advertising for flatmates or tenants if you are purchasing a home as a rental property. Plan ahead for any renovations or decorations you want to undertake prior or shortly after moving in.
Rates
Owning a house means you become a ratepayer. Rates are a form of tax you pay based on the value of your property. The amount is set by your local council to help pay for roading, water supply, stormwater systems, libraries and parks or reserves.
In some areas, rates make up to 50% of a council’s income, making local government bodies rely heavily on these payments. Depending on where you live and how much your property is worth, first-home buyers can expect to spend several thousand dollars a year in rates.
Maintenance
As a homeowner, you are responsible for the maintenance and upkeep of your property. Calculate and budget for regular events such as chimney sweeps and gutter cleans as well as the unexpected including leaking pipes or roofs, broken air ventilation systems, plumbing repairs and faulty wiring. Financial experts suggest putting at least 1% off your home’s purchase price into an annual repair and maintenance fund to be adequately prepared for emergencies.
Another expense most homeowners do not think about are body corporate fees. These often apply if you purchase an apartment, townhouse or unit where you share spaces with other homeowners. In that case, additional insurance and maintenance costs need to be paid.
For all your questions and concerns around buying your first home, Boost Brokers is here to help. We have supported thousands of Kiwis making the step onto the property ladder and into their own home. We will guide you along the entire process and make sure you get the best financial deals that suit your needs and your budget.
Let us help you make your dream come true and give our experienced team a call today.