For first-home buyers, saving a deposit needed to get on the homeownership ladder is not easy. 20% can seem like an insurmountable amount of money. But don’t despair. There are still ways that Kiwis can achieve their dream of home ownership even if they have a smaller deposit.
Homeownership is possible
If you’re a first home buyer and don’t have a 20% deposit, Global Finance is here to help make homeownership possible. Securing a first home loan when you have less than a 20% deposit can be difficult, but it is doable. We can guide you through your various options and resources.
Three ways to secure a first home mortgage with less than 20% deposit
1. Building a new home
2. Taking advantage of Kāinga Ora’s First Home Loans and Grants programme
3. Speaking to your existing bank
1. The new building exemption
If you’re buying a house that’s already built and more than 6 months old, you’ll likely need a 20% deposit to get a mortgage. If you’re buying at an early stage of construction or from a developer within six months of completion, you could potentially put down as little as a 5% deposit, although a deposit that small is unlikely.
Turnkey building packages and mortgages
With a turnkey contract, you purchase a pre-designed home from a developer that is ready to live in upon completion. These off-the-plan new houses aren’t bound by the Reserve Bank’s loan-to-value ratio (LVR). You pay a deposit of 10% for a turnkey home before the build starts. There are no progress payments required during the course of the build. All the build costs are paid by the developer as it is happening. You pay the remainder once the build is completed.
Global Finance mortgage has specialists who regularly manage the lending process for turnkey building packages. If you’re thinking about buying your first home off the plans, we can help you understand the ins and outs of the whole building and loan process from start to finish. It is vital you understand what is and isn’t covered in the building contract. Get in touch with our team and make the most of our expertise and advice.
2. Kāinga Ora’s First Home Loans and Grants programme
Kāinga Ora is a government organisation to help Kiwi first-home buyers overcome the deposit barrier to home ownership.
The two Kāinga Ora schemes are quite different.
• First Home Loans: previously known as the Welcome Home Loan. First home buyers can take out a loan to buy an existing home or build a new one with only a 5% deposit. To qualify, your income can’t exceed $150,000 over the previous 12 months and you must commit to living in the house for at least 6 months. Some participating banks are even giving same home loan rates as what borrowers get at 20% deposit. We know of one bank which under this scheme is giving rates even lower than what borrowers get with 20% deposit.
• First Home Grants: If you have been contributing to KiwiSaver for at least three years, can get up to $20,000 in home grant from Kainga Ora) to put towards a deposit. The value of the home you can buy is capped; this cap varies from region to region. You must also have a joint household income below $150,000 (before tax) and have saved a 5% deposit.
3. Speaking to your existing bank
Banks are reluctant to lend money to first-home buyers with a small deposit, but getting a mortgage is not impossible. The Reserve Bank implemented strict loan-to-value ratio (LVR) rules that placed a 10% deposit requirement on new home loans. These rules don’t completely eliminate low-deposit lending, but they do limit the low-deposit mortgages by banks and lenders to just 10% of all new lending.
So, while it may be more difficult to obtain a low-deposit loan from your existing bank, you can get one if you have a good income, a secure job, you can prove you’ve got a solid financial head on your shoulders, and you know how to present yourself.
Keys to a low-deposit mortgage from your existing bank
• Ensure you have an excellent credit history
• Have a saved deposit: Even if you have less than the target 20%, this shows you are responsible with your money and capable of making repayments.
• Demonstrate good financial management and account conduct: Banks want to see that you are responsible with your money and can manage your finances. Ensure you have no unauthorised overdrafts or dishonours on your account.
• Demonstrate long-term high income: Show you have been earning for a least three months, expect to be able to make repayments over the longer term and have a comfortable surplus of funds once all expenses are deducted.
• Carry hardly any debt: Demonstrate you are not overstretched financially so will be able to make repayments on time each month.
Banks have a very high threshold for 10% deposit mortgages, but it’s still possible. You may be able to obtain one if you have a strong application. At Global Finance, currently we see this as the least frequent way in which first-home buyers with a low deposit buy their homes, but it is a viable option for some of our clients.
How to find a low-deposit mortgage
Are you thinking about buying your first home? Saving up for a 20% deposit on a home can feel like an impossible task. Programmes like First Home Loans and Grants exist to help, but Kāinga Ora is just one of the ways forward to homeownership.
If you’ve got a low deposit for a mortgage, contact us here at Global Finance. Go into your bank, and you may speak to someone who has a lack of knowledge about what other options may be available to you.
We may be able to give you a better idea of what’s happening in the market. We can also guide you and make sure that you take advantage of all available resources, such as Kāinga Ora’s First Home Loan programme, buying your own home off the plans or talking to your existing bank. Give us a call today!
The information and articles published on this website are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in articles on this website should not be substituted for financial advice. Financial advice should always be sought. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or their employees liable.