The plight of the First Home Buyer has been in the news a lot lately. Let’s face it – it’s a gig that doesn’t seem to be getting easier, and damn-near impossible if you live in Auckland.
What I am seeing though is a bunch of first home buyers that don’t understand the importance of a good deposit and almost exude an entitlement to buying a house without one!
More and more I’m visiting young people to discuss financing them into their first home and I look into their lounge to see they have brand new furniture and the latest 60 inch TV, they serve me coffee from the new Nespresso machine and give me their financial details from the just-released tablet or phone. And they then proceed to tell me they have no savings and they’re having to rely on Kiwisaver to get into their first home.
So, does it really matter how much you have for a deposit?
Well Mr and Ms First Home Buyer, let me emphasise something for you. Never never NEVER underestimate the importance of a good deposit so save your little entitled hearts out. And the more, the better - trust me.
None of this, “we want to use the minimal deposit we can so we can use the rest to buy nice furniture" rubbish. Use as much as you can on your deposit.
Depending on the criteria of the various lending institutions, the difference of 1% deposit could mean the difference between a 'yes' or a 'no' with your credit application. If nothing else, the bigger your deposit is means you have to borrow less money and that’s definitely a good thing.
What makes up a Good Deposit?
Savings
Most lenders will want to see a percentage of your deposit as genuine savings – maybe 5%. They want to see that you are willing to sweat or bleed to get your loan because then you are more likely to respect it and make every payment. They actually call it Hurt Money! It’s a term I’ve heard many times. Here’s some great news for you though: your Kiwisaver and the Housing NZ grant both count as Hurt Money! Happy days… makes things a little easier.
So, when growing your savings, here’s a tip for you while getting a deposit organised. Get your broker or home loan consultant to work out what your mortgage payment would be, take what you’re paying in rent right now, and put the difference into your savings. This shows your home loan consultant that you can afford a loan payment.
DO NOT withdrawal from the savings though, no matter how good that trip to Raro looks!
Kiwisaver and Grants
These days your deposit can be made up of not just savings but Kiwisaver contributions and gifts, if you’re lucky enough to have relatives who want to help in that way.
Alongside your Kiwisaver money you might also qualify for the Housing New Zealand HomeStart Grant. It’s money for nothing so you’d be mad not to see if you qualify.
How much should your deposit be?
20% is an ideal deposit, but that’s just not possible in some areas and lenders are doing their best to accommodate higher loans.
Do your homework and ring around. Don’t use websites – especially these days with the Reserve Bank restrictions in place, lenders' appetites for low-deposit loans changes weekly and sometimes daily, so it's far better to talk to people in the industry. Be aware though, any loan you may get with less than 20% deposit will probably subject you to either a Low Equity Fee or an increase in your interest rates called a Low Equity Margin. Get your home loan person to explain these to you, and do your best to amass the biggest deposit you can as the closer you get to 20% the lesser these fees or margins will be.
So, you wonderful First Home Buyers, get saving if you haven’t started. Go back to basics, like your parents and grandparents did, tighten the belts a little and prove that you really want it. Sitting on a second-hand couch feels a lot better when it’s in your own house, trust me.
Good luck!
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.
