If there’s one thing we’ve been brutally reminded of this year, it’s that we live in an ever-changing world. Some things may never be the same. However, the world continues to turn, and people will continue to buy houses.
Owning your own home is a goal many Kiwis aspire to, and a goal that most can achieve – with a little bit of work!
You may have heard some noise about the LVR (loan-to-value ratio) rules being scrapped, which has sparked a bit of attention in the media around first home buyers. In reality, this change was made to help accommodate those who already have a mortgage, in case house prices fall. Banks are still putting borrowers under the microscope so whether you are aiming to build new, or buy an existing property, one of the first questions that needs to be answered is whether you can get the funding needed to fulfil your goals.
Your first port of call should be a good Mortgage Adviser. An effective adviser will guide you through the process of obtaining the funding and assist you to buy the right property. A good adviser is indispensable, especially if this is your first foray into home ownership.
Funding can come from a variety of sources, with bank mortgages being the most common. Your adviser knows how these banks operate, and will ensure that you put your very best foot forward to maximize your chances of success with your mortgage application.
Getting yourself “bank ready” is a surefire way of enhancing your chances with the bank. Getting organised early and making some recommended changes to your spending habits and account behaviour, will pay dividends.
Here are some handy tips to help get those ducks lined up:
Banks need to see at least three months of flawless account behaviour. Ensure your direct debits and automatic payments are made – they’ll be looking out for any missed payments.
If you have an overdraft on your bank account, back off on its usage if you can. Rein in non-essential spending to maximize your cash flow. Don’t go into unauthorised overdraft, or if you do, remedy it straight away.
Banks want to know how you will cope with the costs of home ownership. This includes mortgage repayments, rates, maintenance and insurance. Show the bank that you can pay your rent, and save enough cash, to equate to the cost of owning your own home. Loan affordability is a big component of a mortgage application; you want to make sure your spending is in control. Smashed avocado on toast is much cheaper when made at home!
There are many “buy now, pay later” schemes that encourage you to buy stuff. These schemes may look enticing, but they can end being costly, and detract from your credit position. If you really need that gold-plated waffle maker, then pay cash. If not, then leave it on the shelf.
For many first home buyers, KiwiSaver withdrawal makes up a big part of the home deposit. It’s a great scheme, especially when you combine it with the First Home Grant, from Kāinga Ora. Recent events have highlighted how much the value of a KiwiSaver fund can fluctuate, especially if the fund is holding shares (Growth). If you are intent on using your KiwiSaver to help buy a home, then consider switching your KiwiSaver fund to a Conservative mandate. This will reduce any potential volatility in the fund value, and provide greater certainty for your deposit. Ensure you consult with your Financial Adviser before you instruct your fund provider to make the switch.
A fantastic scheme, provided by the Government, to assist first home buyers. There are conditions, of course, but your adviser will guide you, and can assist with the application. For many people, it is the most productive 15 minutes they have ever spent!
Buying a home is a big deal. It’s likely to be the biggest, most important financial decision that you have ever made. Most people will rely on the bank to provide the lion’s share of the funding needed to buy their first home. With good planning, the right advice, and a bit of work, you can line those ducks up to optimize your chances of success.
It's got tons of information and resources to help you get the ball rolling.