Looking to buy your first home but struggling to save for a deposit? Does it feel like no matter how much you save, you just can’t keep up with rising house prices?
Generally, you need a 20% deposit to qualify for a home loan – but it all depends on your individual situation. If you’ve already started saving, but still have less than a 20 per cent deposit, there are a few options available to you that could help you buy your first home sooner. And with property prices rising as fast as they are, it makes sense to get into the property market as soon as you can!
First Home Loan
With Government’s First Home Loan, you could buy your first home with just 5 per cent deposit.
Designed for first home buyers who can afford to repay a mortgage, but who may be struggling to save a large deposit, First Home Loans are issued by selected banks, building societies, and credit unions, and are underwritten by Kāinga Ora – Homes and Communities.
To be eligible for the First Home Loan scheme, you must:
- Earn a maximum annual income of up to $85,000 (before tax) for 1 person, or a combined annual income of $130,000 (before tax) for 2 or more people buying a first home together.
- Already have 5 per cent of the purchase price of the home you intend to buy.
- Be buying a home priced under the regional house price cap for the area you’re buying in. House price caps vary from region to region and for existing or older homes versus new builds.
- Be a first home buyer or in a similar financial position to a first home buyer. You cannot already own property.
- Intend to live in the property. First Home Loans can’t be used to buy an investment or rental property.
- Be a New Zealand citizen or permanent resident or a resident visa holder who is ordinarily resident in New Zealand.
- Be over 18 years’ old.
In addition to the government’s criteria, participating lenders will also use their own lending criteria to assess applications and make the final decision on loan approval. Different lenders may have slightly different lending criteria, but in general, they will look at affordability to assess whether you are a suitable borrower.
Lenders’ Mortgage Insurance
If you have a deposit that’s less than 20 per cent, it means you have a Loan to Value Ratio (LVR) of more than 80%, and lenders may charge you Lenders’ Mortgage Insurance.
Lenders’ Mortgage Insurance (LMI) is an insurance policy that protects the lender from a financial loss should you default on your mortgage repayments. Generally, LMI is a one-off insurance premium and costs can vary between lenders – your lender may charge you a set dollar amount (LMI fee), or a percentage of the loan amount (LMI charge).
Either way, it’s important you factor in the cost of LMI if you do have less than a 20 per cent deposit.
KiwiSaver for first home buyers
Another two options for first home buyers struggling to save a deposit, are the KiwiSaver First-home Withdrawal and First Home Grant.
Provided you’ve been contributing to KiwiSaver for at least three years and you meet certain eligibility criteria, you may be entitled to either or both of these options.
KiwiSaver First-Home Withdrawal
As a first home buyer and KiwiSaver member, you may be entitled to withdraw some of your KiwiSaver funds to use as a deposit for a first home, provided:
- You’ve been a contributing KiwiSaver member for three years or more.
- You’ve never withdrawn from KiwiSaver to buy a home or land before.
- You intend to live in the property you’re buying.
If you’re eligible, you can withdraw any contributions you and your employer have made, along with Government contributions and any investment returns on these amounts. You just need to leave a balance of $1,000 in your KiwiSaver account.
First Home Grant
After contributing to KiwiSaver for three years or more, eligible first home buyers may apply for the First Home Grant. The grant provides:
- $1,000 for each of the 3 or more years of contribution to KiwiSaver, up to a maximum of $5,000 for individuals or $10,000 for two or more buyers, to be used to buy an existing or older home.
- $2,000 for each of the 3 or more years of contribution to KiwiSaver, up to a maximum of $10,000 for individuals or $20,000 for two or more buyers, to be used to buy a new home, land to build a new home, or a home bought off the plan.
As with the First Home Loan scheme, there are certain criteria you need to meet to be eligible for the First Home Grant. You must:
- Have been contributing to KiwiSaver for at least three years.
- Have had an income in the past 12 months of less than $85,000 for an individual buyer, or a combined maximum annual income of $130,000 for two or more buyers.
- Have not previously received a First Home Grant, HomeStart Grant or KiwiSaver deposit subsidy.
- Have at least 5 per cent of the purchase price of the property.
- Be over 18 years’ old.
Help from family
Some first home buyers are fortunate to have family members who are able to help them buy a first home. There are a few ways that family members can help first home buyers get onto the property ladder:
Act as guarantor
If you have parents or family members who own their own home or investment properties, they may be able to act as a guarantor and provide their own property as security for part of your deposit.
As a guarantor, your parents or family member can guarantee a percentage of your deposit secured against their own property. So if you’ve managed to save a 10 per cent deposit for example, your family member could guarantee the other 10 per cent to make up the required minimum 20 per cent deposit. That way you won’t have the added expense of paying Lenders’ Mortgage Insurance.
Remember, you’ll still be responsible for repaying your mortgage, and if you default, the lender will be able to call on your parents or family member to help repay your loan. If you make repayments on time you may be able to refinance at a later stage to remove the guarantee.
Provide a cash gift
If your family can afford to help financially kick-start your home ownership dreams, the easiest way to do this is with a cash gift or a no-interest loan.
For family members who prefer not to carry the full risk as a guarantor, providing a cash gift or no-interest loan offers them a chance to help without the legal association between their own property and yours.
While most lenders will accept gifted deposits, they may prefer that at least 5 per cent of your deposit be genuine savings. So you’ll still need to have some of your own savings – your Kiwisaver (if eligible) also counts as genuine savings. To know more information about genuine savings, you can consult Mortgage Advisers at Max Mortgages.
Contact Max Mortgages today
Buying a first home is an exciting experience. But it can also be incredibly challenging. Struggling to save that all-important deposit can mean putting the brakes on your home ownership goals and even missing out on your dream home.
Don’t let a low deposit hold you back. Get in touch with Max Mortgages to find out more about any of the deposit options available to you as a first home buyer. We’re already helping New Zealanders get into their first home sooner, and we’d love to help you too.