5 Things Every First Home Buyer Should Know
If you’re getting ready to buy your first home, here are five crucial things you need to know.
1. Help is at hand!
As a first home buyer in New Zealand you may be eligible for various types of support.
- If you are a citizen or permanent resident, have never owned property before and earn less than $85,000 (or $130,000 combined income if you are buying with other people), you could qualify for a Welcome Home Loan. This is a special mortgage underwritten by Housing New Zealand.
With a Welcome Home Loan you’ll only need to save a deposit of 10% instead of the standard 20%, which can make it much easier to get into your own home. However, this will mean you’ll pay more in interest over the long term, since you’ll be borrowing more – and you’ll also have to pay a 1% Lender’s Mortgage Insurance premium, to protect the lender in case you can’t make your mortgage payments.
- If you have been a member of KiwiSaver for at least three years you may be able to draw money from your super fund to use as deposit on your home.
- If you have been contributing consistently to Kiwisaver for at least three years you could qualify for a KiwiSaver HomeStart grant of up to $5,000 towards your home deposit (or up to $10,000 if you are buying a new-build home).
2. You need to be disciplined about saving
Even if you do qualify for a Welcome Home Loan and only need a 10% deposit, saving can be the most challenging thing about buying your first home.
While you are saving, house prices may continue to rise, so it can feel like you never get any closer to your target.
It’s crucial that you pay off any debts (credit cards, overdrafts, personal loans etc) before you start, as the interest you’ll pay on borrowings will always be more than you can earn on your hard-earned savings. Once that’s done, the best way to save for your deposit is to set up separate account and an automatic transfer, so that any cash you don’t need for bills and day-to-day expenses will go straight to your savings.
Carey Brunel, CEO of HomeLoan.co.nz says, “Consider buying small – research by Victoria University of Wellington has shown that 45% of the space in most houses is barely used. You may find you can afford a nicer house in a nicer area (and save yourself a packet in ongoing costs like energy bills) if you are willing to embrace the benefits of minimalist living.”
3. Your family can help
If you have family or friends who are willing to help you get into your first home, they can help in several ways.
- Lend you the money you need – be sure to put a formal loan agreement in place, to prevent disputes and protect your relationship. When it comes to applying for a mortgage, your lender will take your family loan into account and will need to see that you can afford to make payments on both.
- Act as guarantor and co-sign your mortgage. This means that if you can’t make your repayments, they will have to. Be aware that if they use their own home as security for your loan, they could risk losing it.
- Use the equity in their property to guarantee part of your loan – the amount you need for your deposit – through a product like Westpac’s Family Springboard. You will be solely responsible for the rest of your mortgage.
4. There are a lot of costs to factor in
When you start to calculate your purchase budget, you’ll discover there’s a lot more to consider than just the price of the house.
Your lender will decide how much you can afford to borrow, based on your income and living expenses – but to find out how much you can afford to spend, you’ll have to deduct all the purchase costs from that borrowing limit. Costs include:
● Building reports
● Land information memorandum (LIM)
● Legal fees
● Mortgage set up and administration costs
● Utility connection fees
● Moving expenses
5. Research is crucial
When you are finally ready to start house hunting it’s vital that you research carefully, to make sure you buy the right property in the right area. The one thing you can’t change about your new home is its location, so be sure to choose suburbs that offer whatever is important to you – whether that is shops and restaurants, a lively nightlife, parks and schools, tranquil streets, public transport or lots of parking.
Before you make any offers, look at several properties in your target area to get a feel for fair value.
By Mary Paterson
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