If you’re looking to buy your first home, or simply just wondering what’s involved, you’re not alone. It can be daunting and seem like a confusing process, so it’s important to be armed with the right information. We receive hundreds of questions from Kiwis looking to get onto the property ladder, and our team of advisers know the process inside out. So, we put our heads together to answer some of the most commonly asked questions about buying your first home. Let’s get into it:
Dreaming about your first home buying experience is exciting - as is conjuring up each room on your Pinterest board. But, you should probably stop and ask yourself if you’re actually ready to buy your first home.
The best place to start? Your financials.
If you have a 10% deposit, minimal outstanding debt (don’t worry about your student loan debt - banks get that) and a good income, you’re probably in good stead to get pre-approved now. And, if the total amount you’re paying in rent and saving on top of that is close to what the mortgage repayments will be, you can prove you’re able to service a mortgage. If your financials are all telling the right story, that’s a great start.
The decision to buy instead of rent can be a tricky one. Handing over a substantial amount of money to the bank and being ‘slaves to a mortgage’ might seem daunting, but there are plenty of benefits to buying instead of renting. Here are some:
Buying a home is an investment - when you buy a home, your deposit becomes your equity in the property. As you pay off the mortgage and interest, your equity grows. Then, when you eventually sell your home, you can make money on the sale of your property, especially if the property market is in a good place. This means capital gains for you and a stronger equity position.
And of course, there is the benefit of total control when you own a home. You don’t need to abide by your landlord’s rules. Being able to have pets, repaint and redecorate is a big upside to buying instead of renting. You also won’t need to worry about potentially being asked to move if the property owner has decided to sell or move back in themselves.
Don’t forget, the deposit and mortgage repayments aren’t the only costs involved in buying your first home. Going about the process in the right way and doing your due diligence does incur some cost - but in our opinion, it’s worth it. Here are some costs to be aware of:
The building inspection report can range from approximately $300-$600 depending on whether it’s a verbal or written report. This report isn’t mandatory, but gives you peace of mind that the property you’re buying is sound. It will highlight any concerns or areas needing immediate attention - this can give you leverage to negotiate a lower purchase price if you have a conditional offer on the table.
If your house deposit is less than 20%, the bank will generally require you to arrange a registered property valuation as one of their conditions for finance. In this valuation, the valuer inspects the property and comparable sales in the area to determine what the property’s value is. These reports vary in price depending on the location, size and type of property, but we would budget roughly $650 to $1,000 for this.
Having a lawyer to look over the LIM report and the Sale and Purchase Agreement to ensure all is OK from a legal standpoint is wise. Again, like the builders report, this isn’t a bank requirement, but for your own peace of mind. If your offer is successful, your lawyer can also do the conveyancing of the purchase - helping you with the KiwiSaver withdrawal paperwork and signing off the mortgage documents. We’d recommend you budget approximately $1,500 to $2,000 for these costs.
You’ll want to make sure your new home (and bank account) is protected from unforeseen circumstances like natural disasters or house fires. Don’t wait until that sales and purchase agreement is signed, make insurance a priority. Getting quotes early on is a smart approach so you know what kind of premium will be involved and can budget for it. Also remember that cover can change over time, so having some contingency in your budget to account for annual premium increases is a good idea.
Being insured for the right amount is key so you aren’t over insured (i.e. paying too much) or underinsured (not enough!). Our insurance whizzes can help suss this out for you too. Chat to our team to get an idea of how much you should be insured for.
The million dollar question - how much can I borrow? Well, this depends on what your house deposit will be, your NET annual income and living costs.
It’s two fold - banks generally need a minimum 10% deposit and they need to be comfortable you can service the 90% mortgage, so every case is different. Banks want to lend to you, they just need to be sure you can afford to pay back the debt.
You can use our Mortgage Calculator to find out how much you can afford to borrow for your first home. It’s easy - just enter in your income, any dependents and vehicle costs and it’ll take care of the maths for you.
The KiwiSaver HomeStart Grant is eligible to those who have been contributing to KiwiSaver for at least three years. For existing/older homes, the HomeStart grant is $1,000 for each year you have contributed, up to a maximum of $5,000 (5 years). Or, if you’re purchasing a new home or off the plans, the HomeStart Grant is $2,000 for each year you’ve contributed, up to a maximum of $10,000 for 5 years.
There are income and house pricing caps to bear in mind. For an individual, your yearly income must be $85,000 or less (before tax), and for two or more buyers, the combined annual income can’t exceed $130,000 before tax. You can check out the HomeStart Grant eligibility checklist for more information.
If you meet this criteria and purchase within the regional house price caps, your lawyer will help with the paperwork to get these funds credited to your lawyer’s bank account in time for settlement.
A Welcome Home Loan is issued by selected banks and other lenders that means the home buyer only needs a 10% deposit instead of 20% deposit to get into their first home.
To be eligible for a Welcome Home Loan, you need to meet certain criteria:
In order to use your KiwiSaver to buy your first home, you need to meet the following criteria:
If the above applies to you, you should be able to put your KiwiSaver balance towards a house deposit. Although, there needs to be a minimum of $1,000 remaining in your KiwiSaver after the withdrawal. Banks generally want to see a letter/email from your KiwiSaver provider confirming the eligible amount available to withdraw, which will be an exact figure.
Yes it can. Of course it’ll depend on why your credit score is low, but it could mean a bank doesn’t give you mortgage approval, or potentially impact how much they approve you for. If your credit history has previous defaulted payments, or shows that you aren’t good at paying your credit facilities on time each month, then the bank could be less likely to approve you for a mortgage. This can include your utility bills, credit card statements or other loans.
Top tip: you can actually request a free copy of your credit report once a year to see for yourself what information is on there.
The short answer is yes – banks won’t lend with anything less than a 5% deposit.
That said, if you need a helping hand with reaching a full deposit, there are options like the bank of mum and dad/using a guarantor. Head over here to find out how these deposit options work.
The house deposit is dependent on the value of the house. You may be familiar with the magic number being 20%, but the reality is if you’re in a strong financial position we can work with a low deposit home loan of as little as 5%. Most buyers will need around a 10% deposit, but if you can fork out the full 20%, you’ll access the banks’ most competitive rates and avoid low equity fees.
For instance, if the house is $650,000, a 20% deposit would be $130,000 and a 10% deposit would be $65,000. So, the deposit number will vary if the house price increases or decreases.
So you’ve got your eye on a few homes in the area, but when will you need to put your money where your mouth is? The timeframe for when the deposit is due can vary on the method of sale the home is being sold by (negotiation and deadline, auction or tender).
In a stock standard Sale and Purchase Agreement, 10% will be payable upon going conditional (meaning you’re buying the property as you have satisfied the purchase conditions such as finance, satisfactory builders reports etc). If you’re buying a property by auction, the deposit is payable upon being the successful purchaser on auction day.
If you don’t have the 10% readily available, in either situation you can often negotiate a lower figure with the real estate agent or even negotiate for this to be paid when your KiwiSaver funds have cleared (if your deposit is mainly in your KiwiSaver fund). The balance of your deposit will then need to be paid to your lawyer before settlement day (the day you get the keys and the house is yours).
A mortgage pre-approval is the bank (lender) approving you to borrow a specified amount from the bank. This approved amount will then be added to your deposit, allowing you to buy a property up to X amount. Once approved, the bank has cleared you as a borrower subject to being happy with the property itself and any other conditions. So you’re halfway there and have your ducks in a row to start actively looking at houses!
Getting a mortgage pre-approval means you can move quickly if you find a property you like. Bear in mind that this pre-approval does expire. Most of the time, it’s valid for 90 days but can vary depending on the bank you choose. If you don’t find a property within this timeframe, provided your situation hasn’t changed, this can be extended further.
In a perfect world, you would have a 20% deposit or more to get the banks’ special advertised rates. However, the reality is most first home buyers don’t have that kind of money and the help of a guarantor isn’t always an option. With Squirrel we’re across all of the banks’ pricing which means we can ensure you’re getting the best rate in the market for your situation, rather than knocking on all of the bank’s doors yourself.
A mortgage broker can arrange and negotiate mortgages between the borrower (yourself) and the lender (the bank) and in our case, we work with clients all over New Zealand.
A Squirrel mortgage broker is going to give you honest, unbiased advice and guide you through the first home buying process. We have access to most banks, can give feedback and advice on properties, recommend lawyers and building inspectors, and at the time of purchase, ensure you get the best home loan rate for your needs. We’ll also help tailor your mortgage repayment structure to suit you and your future goals, which a bank won’t do. Have a read of our 50 reasons to use a mortgage broker on the blog.
Ideally, you’ll be paying principal (the actual amount borrowed) and interest so your mortgage balance is reducing over time. This is a requirement with most banks if it’s owner occupied - meaning your own home rather than an investment property. For people who want to pay off their mortgage early, it’s best to stick to this type of mortgage repayment scheme.
However, if the property is an investment property, you’re unexpectedly unemployed, or your situation changes (such as reducing to one income whilst on maternity leave), this can change. Your bank may look at an interest only mortgage, meaning you just pay the interest cost so your actual mortgage balance doesn’t reduce, but your repayment amount is lower so more affordable. Read up on all the different types of mortgages here.
The length of the home buying process really varies. Some people get pre-approved and purchase a home straight away, while others may be pre-approved for a year or more until they secure the right home. Often getting a mortgage pre-approval is the easy part - it’s finding the right home that ticks all the boxes can take time. But it’s important to remember not to rush the process. Buying property is likely the biggest financial commitment you’ll make, so you want to be absolutely sure before you seal the deal.
Everyone is different and there’s no exact answer. Most people have taken out their mortgage for a 30 year term, but don’t live in the same house for that long. Life changes and situations change - you may simply want to upsize, move to a better area for school zones, or downsize once the kids leave the nest. We’re always happy to be a sounding board if you need to bounce ideas around your next move.
If you’re still scratching your head or have some more questions you’d like answered, our team is always keen to chew the fat. Simply get in touch and we'll be happy to help you out!