Your hard-earned money paying someone else’s mortgage isn’t going to start your journey to financial freedom.
However, with all of the noise around interest rates and home values, it would be easy to shy away from your first home purchase right now, but in reality, it’s still an excellent time to buy if you are free of the burden of having to sell a home in the same market.
With house prices shifting down, you must be completely informed of all your financial and purchasing options. To help you on your journey, we have developed some insights to help you navigate your first home-buying experience.
Dollars and Sense
A 20% deposit may be too huge, and saving $160,000 can be impossible with the current cost of living. Some of your lucky friends have been able to call on the bank of Mum and Dad (which is an excellent option if it is open to you), but you are doing the hard graft to get there!
This could be achievable without the full 20% deposit in several ways.
Recently, house price caps were lifted dramatically for those seeking access to the First Home Grant. This means we have properties nationwide now available to those eligible for this amazing contribution to your deposit.
Kainga Ora is now offering First Home Loans to a broader spectrum of people with an additional 2,500 loans available. The house price caps on both new and existing homes have been removed entirely for the First Home Loan scheme. However, income caps for borrowers will remain.
Finding the deposit for your first home can be a struggle, with most lenders currently requiring a minimum 20% deposit. With a First Home Loan, you only need a 5% deposit which means getting into your first home is much easier. First Home Loans are issued by selected banks and other lenders and underwritten by Kāinga Ora. This allows the lender to provide loans that would otherwise sit outside their lending standards.
- Have an annual income of no more than $95,000 (before tax) for an individual buyer; or
- have an income of no more than $150,000 (before tax) for an individual buyer with one or more dependents; or
- Have a combined income of no more than $150,000 (before tax) for two or more buyers, regardless of the number of dependents.
- Minimum deposit – You will need a minimum of 5% of the purchase price of the house you wish to buy.
If you have managed to pull your deposit together, it’s time to convince the lenders that you can make the mortgage work within your budget. This requires lead time and some very well-managed living.
For several reasons, a new build with a strong fixed-price contract is a good option. It will have little to no surprise maintenance costs, additional lending benefits and grant access where applicable, and at the very least, it will hold the purchase value. However, you do need to prepare for the process.
Step One: Try and get rid of any new debt and/or debt capacity. If you have store or HP cards with unused debt facilities, eliminate them, as this counts as potential debt in your credit score.
Step Two: Be realistic. Your first home is unlikely to be your dream home, but a new build is a great start. You may not be able to buy a house a 5-minute drive from the city centre, but you won’t spend your weekends fixing spouting and wood-rot!
Step Three: Do your homework. Find a lender that has the best possible deal for your profile. If it is your first home and you are considering a new build, some lenders have special interest rates for new builds and first-home buyers. A banking history with a specific bank isn’t the advantage it once was.
Step Four: Spend three months ‘living’ your budget with a mortgage factored in. This means cutting unnecessary spending where possible, so your bank statements show that you can withstand the pressure of an interest rate increase (currently, this is being stress-tested by most banks at a little over 7%).
Building your dreams
Some advantages of a first-home build are apparent, but some benefits are less well-known.
There are the financial benefits that come with grants and loans. Still, other favourable conditions make a new build a great way to jump on the property ladder without worrying about expensive and time-consuming renovations!
If you buy your first home, you will work hard to pay your mortgage. After a long working week, you want to be enjoying life with friends and family, not working on repairs and renovations! New builds mean no surprises. Classic Property has a comprehensive Aftercare service as well as a 10-year warranty.
Steph George – A case study
Steph George is living proof that a bit of sacrifice can go a long way. At just 27 years old, Steph is building her first home, and Steph isn’t a ‘trustafarian’ with a mortgage funded by the bank of Mum and Dad. Steph’s homeownership results from savvy, tenacious research and old-fashioned hard work.
As a young person starting your career or possibly returning from an OE, saving a house deposit is out of reach. It isn’t easy, but it is possible. If you are willing to take the short-term pain for the long-term gain, it can be the step ahead that secures your financial future.
‘My Mum and Dad have always taught us to have goals, and I realised quite early on that it didn’t matter what car you drive or what material things you have if you don’t have a safe, warm house to put them!’
Steph works as a youth support worker and has also taken on a role she has had before in a local bar. Seventy-hour weeks are part of the norm, but knowing this is a short-term solution to realise her dreams has made it manageable. Also, boarding at home has been a lot cheaper than flatting.
‘It hasn’t always been easy; I was set back a few times when I contacted the bank to see what I needed to do to get to where I wanted to be….I pushed my KiwiSaver input to the highest contribution level because if you don’t receive it, you don’t miss it, and I saved $300 a week. I was paying rent to my parents, but my outgoings were minimal; I am semi-grateful to Covid just because I wasn’t missing out on going out!’
Steph still spent five years saving the 20% deposit.
‘It’s amazing as there are also two other women in the development also buying their first homes, including a solo Mum, all in their twenties. I’m buzzing for them as much as I am myself…..it’s really cool to know my neighbours are likeminded people who have worked super hard to get into their homes too,’
Steph advises those looking to enter the property market to ‘just keep going and to explore all of the options’. Having faced many brick walls and rejection from lenders, her tenacity paid off, and she could access a mortgage thanks to Kiwibank, forging a great relationship with the mortgage manager who provided solutions to barriers and ended up finding a workable outcome.
Later this year, Steph will move into her own brand-new home with new appliances, no maintenance and an asset she can come home to each night and enjoy.