Buying Your First Home Guide
Buying your first home is never easy. Market prices are forever rising, you have more competitions from overseas investors, and the standard living cost is increasing year by year, making it harder to save. Yes, buying your first home is looking more and more like a fantasy than a future possibility. You can try your hardest to save for that deposit, but then get tripped up at the end by an unexpected cost or a nasty surprise. There is a lot of components that go into buying a new home, so knowing what to look out for and what to expect can be massively beneficial. It’s the getting hit with the unexpected that discourages a lot of first time home buyers as one loss can set you back psychologically and financially.
We want to eliminate these unexpected hurdles by sharing our guide and top tips that you can use to assist you on your home buying journey. We will cover the whole process; initial savings, the searching, the lending process and the buying process. We will state what to expect and what to take into consideration when purchasing a home. And best of all, we will offer our tips that will make the process all the easier.
Getting That Deposit
Saving up for a deposit is the initial grind that everyone must go through. It’s when you adopt the ‘squeeze every penny’ mentality, when you create the ‘staying in on the weekend’ rule and when you develop a love for Budget and Pam brand food products. We all go through it, so it pays to know how long this process may take and ways you can speed it up.
When applying for a home loan, the standard deposit in New Zealand is 20% of the sale price of the house. So if that’s a $500,000 house, you are going to need $100,000 sorted before you can apply. Lucky for you there are a couple of ways to get this money as well as a couple of ways to get a deposit without the 20%.
Savings: Now, of course, you will have your savings, and this should make up the bulk of your deposit. We suggest having an account that offers rewards for not withdrawing from it so you have an incentive to keep it growing.
KiwiSaver: The grand KiwiSaver scheme is something that most New Zealanders have. You make contributions, your employer makes contributions and even the government does. We advise
reading up on our KiwiSaver blog for more information. KiwiSaver can offer you HomeStart grants depending on the number of years you have been actively contributing. Up to $5,000 for an old home or $10,000 for a new build per person. Look into your KiwiSaver and how it can assist you.
Additionally, if you are a first time home buyer, several banks and credit unions (in partnership with Housing New Zealand) offer a ‘Welcome Home Loan’ for first time home buyers that only requires a 10%. The Welcome Home Loan offer is great if you have other costs in life and are finding it difficult to save up for that 20%.
Tip: You should save about $2,000 to $3,000 more than the deposit you plan to make so that way you can cover all the additional expenses that come with purchasing a home – Lawyers, building reports, valuations and LIMS etc.
Finding Your Dream Crib
The thrilling search, some people love it while some people hate it. All we can say for certain is that it will take up a lot of your weekends. When searching for your first home, you may try to find a dream home within your budget. But the chances of doing this is relatively slim. You need to compromise and realise your first home may not be glamorous, heck it might not even be fully operational or liveable. You should think of your first home as one of your biggest investments and your greatest asset.
You need to take multiple things into account when searching for your first home. What is the neighbourhood like? Are there any nearby facilities? Is it close to town? Or does it receive the sun during the day? Many features that go into a properties valuation so being able to find one that you believe has the potential to grow is essential.
There is always the option of hiring a buyer’s agent to do the searching for you. Remove the emotion from the process and have a professional who knows what you want, search out the potential houses you could buy. Doing so will help prevent that dreaded attachment you might get when you visit every open home. Additionally, It will make it less painful when your building report comes back stating all the future repairs you may need. Oh did we forget to mention that you should get inspections done on the property as well? There are a couple of checks that you should have done on a property before you make an offer.
Building inspection: A registered building inspector will inspect your potential home and check the condition of it for you. They will check its structural condition, its plumbing and electrical systems. There is a small fee involved, but it is worth the cost as rotten weatherboards or rusted piping could cost you far more later down the track.
LIM (Land Information Memorandum): This report is done by your local city/district council, and the report outlines all the works on the property that the council/district has done. From zoning details to schedule road/drainage development. A LIM also tells you the rates of the property, so you know what to expect to pay if you do purchase the house.
There is quite a lot to take into account when looking for your first home. So if you are after the thrill of the search then go ahead and do your research. But if you think it might be a lot to take in and do on your own, we advise hiring a professional to help you.
Tip: It is often a good idea to get a bad house in a good neighbour than to get a good house in a bad neighbourhood. You can always renovate a kitchen or bathroom to bump up the value of a bad home, but you can’t do the same with your neighbours.
Acquiring the Funds
After you have your deposit sorted, you will be on the search for a potential home loan provider to get your mortgage with. This can be done before or after you find your house as some people prefer to keep under their budget and not get carried away while searching (will touch on this shortly). Who you get your mortgage with and the term you set it for has a significant bearing on your life as this investment could see you making repayments on the loan and interest on the loan, up to 30 years. Like we said earlier, your first home should be an investment and that you should compromise. So finding a home within your budget and that you can get a mortgage for with a manageable repayment amount is ideal. The quicker you pay, the less interest you will face. So it pays to know what home loan options there out there.
Fixed Rate Home Loans: Are ideal if the market is weak. You lock in a fixed interest rate and can pay off your home loan at a consistent amount over the fixed rate period. This method is great if you are wanting to budget more easily or are worried about what the future economy could hold.
Floating Rate Home Loan: Your interest rate goes up and down with the market. A floating home loan rate is a better deal if you believe you will make regular additional payments on your loan.
There is also a couple of other points you should take into consideration when looking at getting a home loan.
Conditionally approved home loans: You may wish to get your loan approved before you attempt to purchase a home so that you can stick to your budget. Auctions are crazy, and it’s easy to get carried away while bidding, getting your home loan conditionally approved beforehand will limit your options but will help you save money.
Co-signer: Having someone, whether it be a partner, family member or friend, co-sign a mortgage with you will help have your application approved if your credit history or employment history is not up to scratch for the lender. Working just like a guarantor when you sign a flat, a co-signer agrees to assist on paying off the owed amount for you if you are unable too.
Tip: Shop around for different rates and find out what the market is currently like. It might just be a tough time to buy, so getting advice or doing your research can save you thousands of dollars in the end.
Making the Deal
Now it is the exciting part, the actual buying of the house. There are three main ways to do this in New Zealand; Auction, Tender or Offers.
Auction: Is your exciting transparent method that keeps you on the edge of your seat and gets the blood pumping. Just like what you see on the New Zealand television series, ‘The Block.’ The homeowner places a reserve price on their home and you the buyer bid against other buyers until the reserve gets met and only the highest bidder remains. If the reserve is not met then the house is not sold, but the seller may elect to begin negotiations with the highest bidder. It should be noted that need to have your deposit sorted on the day if you purchase as you must be ready to hand it over.
Tender: This method is less discrete as the bids for the property are all written and kept secret until a given date on which the seller then opens and decide if they will accept. Each tender from a different buyer will have their offered amounts as well as any conditions regarding the purchase. The seller may wish to enter negotiations if a tender interests them but is not quite what they were after.
Offers: An offer is simple, you make a proposition to the seller through the real estate agent or solicitor outlining your conditions and offered amount. The offer could be accepted right away or negotiations could begin as both seller and buyer can propose counteroffers back and forth until an agreement is either made or not.
Tip: Contact your solicitor or agent before making an offer so that they can go over the agreement check for any potential issues or any conditions that are not being met in the contract.
So after you make the purchase, the deal and your money is left in the hands of the solicitor who is in charge. The final inspections or both property and contract will take place and then ‘Settlement Day’ will occur. Settlement day is when the remaining amount of the selling price is paid to the seller, and the title of homeowner is transferred to the buyer. It’s at this point that you can then pat yourself on the back and you now have your first home!
We hope you have found this quick guide useful in advising you of the New Zealand home loan process. It certainly is not an easy or quick one as many years of saving, searching goes into acquiring a home and many more years goes into paying for it. It’s best to seek advice when you are seriously thinking about purchasing your first home.
For more information about acquiring a home loan, visit our home loan page.
Or if you are the advice of a home loan specialist, give us a call on 0800 696 636