Looking to buy First Dream Home?
First Home Loan
Buying your first home can be exciting as well as stressful. This is probably biggest financial decision of your life so far and heading in the right direction is very important. Talking to your family, friends, researching on internet, talking to your bank or getting in touch with your mortgage adviser can help you to understand overall first home buying process. One of the most critical event is when you apply for your first home loan. So, knowing whether you are ready to make your first home loan application can be time saving and rewarding.
Having a good understanding of your household budget is the first step to know whether you ready or not. Use our “Budget Calculator” to know your current household budget. Use our “Mortgage Calculator” to know how much your repayments will be for a particular loan amount and replace that with your existing rental payments in your household budget. Also, allocate a ballpark figure towards few new homeowner lifestyle expenses e.g. House Rates, House and Contents Insurance, Life or Mortgage Insurance etc. which you may not have in your existing household budget. This will give you a fair idea of how your household incomes, expenses and surplus looks like. It is also wise to live for a while with the new budget and keep extra savings aside to know whether you can carry on with your new budget without any difficulties when you have owned a house. Having good surplus even after meeting new homeowner lifestyle expenses is an indicator that you can create a back up for yourself when the home loan interest rates rise in future or you experience changes in your household budget.
The next important thing to know is your deposit amount and source of deposit. Most banks prefer customers having a deposit of at least 20% of the purchase price of the house. Some banks can allow you to borrow with less than 20% deposit if they have the appetite for low deposit lending.
In addition to your bank savings, you can also withdraw most of your savings from your KiwiSaver scheme if you are contributing into the scheme for more than 3 years. Contact your KiwiSaver provider and get a confirmation in writing about your eligibility amount to withdraw from your KiwiSaver account. This will be required by the banks when you submit your home loan application. You can also be eligible for KiwiSaver Home Start Grant from Housing New Zealand. To check your eligibility, please visit the Housing New Zealand Corporation website http://www.hnzc.co.nz
If you don’t have enough deposit, you can try taking help from your family. Your parents may be able to gift you the shortfall deposit, come along as joint borrowers or provide a guarantee by using equity available in their house. This option is worth exploring.
If you still can’t reach up to 20% deposit level, you can try your first home loan under “Welcome Home Loan” scheme which is a Housing New Zealand initiative to help first home buyers. You may be eligible to borrow up to 90% of property value under this scheme but there are certain criteria to be eligible under this scheme e.g. maximum value of the house for your region, income criteria, you must live in the house etc. To check full eligibility details, please visit the Housing New Zealand Corporation website http://www.hnzc.co.nz
Ideally, you should be New Zealand permanent resident or New Zealand citizen in order to apply for a home loan. Because, if you are not, the banks may not approve your home loan application or may require a higher level of deposit say 30% or higher to approve your application under the non-resident category.
Try our “Mortgage Eligibility Calculator” to know how much you can possibly borrow from the bank. Add this amount to your deposit figure to arrive at an approximate purchase price of your first home.
When you know approximate purchase price, start looking for properties in this price range. We have given links to some important real estate websites for your convenience under “Resources” menu so that you can do research at your end to know the type of properties are available in this price range and whether you like these kinds of properties or not. In our opinion, you should also visit few open homes to know the locality and understand commuting options from that house because you will be living in that house for a long time if everything goes through.
We recommend that you do this step before you apply for your home loan so that you have a fair idea about the locality and price range of the type of properties you like and once you have pre-approval from the bank, you can start next steps straight away to finalise the property.
Most of the lenders give cash back to attract the customers which may cover your solicitor, property valuation, building inspection cost etc. involved in the property purchase to some extent. However, lenders will require you to return the cash back in case you repay the lending partially or fully within a certain time period, generally 2-4 years.
If you are borrowing more than 80%, your bank may or may not offer cash back to you but it depends on bank’s appetite for lending at that particular time.
Most of the lenders give a further discount on interest than advertised on their website so don’t settle on the rates advertised by the banks. We can negotiate discounted interest to secure a better deal for you.
If you are borrowing more than 80%, banks may not offer a discount on interest rate and rather charge a Low Equity Margin from you either in the form of increased interest rate added to home rate or as a one-off low equity premium.
We have seen clients asking for shorter loan term so that they can pay off their mortgage faster. It is absolutely fine if this suits you but you don’t necessarily have to. You can pay-off your mortgage faster even without increasing your loan repayments so no need to take on the financial burden of increased repayments. We can design appropriate loan structure for you in such a way that you can keep paying minimum P&I repayments and can still repay your mortgage faster. We can discuss different options based on your financial position and financial goals. We have heard that some mortgage advisers charge a hefty fee for this and we recommend that they don’t. We provide this service absolutely free of cost.
You can go for a “Turn-Key” or “Land & Build” option and some banks approve up to 90% of the purchase price.
As the name suggests that you turn the key to move in the house. Under the Turn-Key option, you sign a deal with the builder/developer to purchase a house at a set price prior to the house is built. You pay somewhere around 10% deposit to secure the deal and you can get pre-approved finance from the Bank for the remaining funds when the house construction is complete. In such cases, the bank will allow settling the deal when the Council has issued Code Compliance Certificate (CCC) and the house is ready to move in. The benefit of buying under the turn-key project is that you do not have to purchase land, then find a builder to build the house and start paying him as the construction of the house progresses. You also save the time and effort to get Council approval and consents etc. The house is built as per specifications given by the builder/developer at the time of signing the deal and they can allow minor changes during the construction as per your choice e.g. choosing the colour for carpet and curtains etc. So, you get the house as per your requirement and don’t have to worry about the construction-related hassle. You can also negotiate to get out of the deal (sunset clause) if the house is not ready by a specified time.
Building your dream home sounds interesting and certainly, it is. So, before you finalise any section, start talking to your architect and builder, it is recommended that you have a good idea of the overall building process, funding arrangement, and documentation required by the bank to approve your construction loan.
Please refer to our Construction Loans section for more details.
Now you are pretty much ready to apply for your first home loan. Generally, following documents will be required to secure a pre-approval for your first home loan:
– Latest 3 payslips of each applicant
– Latest 3 months deposit bank account statement
– Latest 3 months salary and transactional bank account statement
– Passport of each applicant
– Property details if you have finalised any property so far
In case, any of the applicants is self-employed, the bank will require last 2 years of business financial statements to determine the level of earnings for that applicant.