What you need to know

Looking for your first time home is equal parts exciting and nerve-wracking. The thought of getting into your own place is thrilling but spending your savings and taking on a huge mortgage is daunting. And that’s before you even start to think about LIMs, building reports, CVs and conveyancing.

If you’re not sure where to start, here’s our beginners’ guide to buying a house:

1: Start with savings

Saving a deposit is the first and most important step when it comes to buying your first home. Without a significant chunk of cash, you won’t get far in most parts of New Zealand.

The average house price in New Zealand is $597,000. In Auckland, it’s closer to $850,000. Most lenders require a deposit of 20% of the value of the home, which means you’ll need to save $120,000+, depending on where you live and what you’re looking for.

One possible exception: if you’re buying your first home and you meet certain income criteria, you may qualify for a Welcome Home Loan, which only requires a 10% deposit.

2: Looking for a loan

Once you’ve saved enough for a deposit, it’s time to find a lender. Although some people find a house first and then apply for finance, it’s smart to get pre-approval – that way, you can move quickly when that perfect house turns up.

You can apply for a mortgage with your current bank, shop around with various lenders, or get a mortgage broker to do the legwork for you. Brokers don’t generally charge for their services, and they’ll get a range of offers from different lenders, so you get a good idea of your options.

To apply, you’ll usually need proof of your deposit, proof of income for three or more months, a budget or rundown of your expenses, as well as ID and proof of address. Often, a lender will give you pre-approval of a certain amount for three months, so you have time to look for houses, make offers, and bid at auctions.

3: Borrowing on a budget

Deciding how much to borrow depends on your deposit, your income, your location, and the type of house you’re looking for. When you apply for pre-approval, the lender will set an amount – but you don’t have to borrow as much as they approve. If you can find a house at the right price, it’s better to borrow less than the maximum offered by the bank.

The lender will calculate your loan using an algorithm, without considering the reality of your day-to-day life. You’re the one who needs to work out how much debt you can realistically take on – it’s easy to think about scrimping and saving to pay the mortgage, but your repayments need to be sustainable over time, and you need to be able to cover extra expenses when they arise.

4: Lending a hand

Buying a home is challenging for many New Zealanders. If you’re struggling to get a deposit together and you’ve been contributing to a KiwiSaver scheme for at least three years, you may be able to get help in the form of a HomeStart Grant. The amount depends on the type of property you’re buying, and how long you’ve been paying into KiwiSaver.

If you’re buying an existing home, you can get $1000 for each year you’ve been making contributions – up to $5000 after five years. Couples can pool their grants, giving them $10,000 to put towards their deposit.

People buying newly built homes or land get double that amount, $2000 per year of contributions, up to a maximum of $10,000.

5: Finding the right house

Your first home probably won’t be your dream home, but that’s OK. It gets you onto the property ladder, and you can always climb higher in a few years. Finding a house can take a while, but that’s actually a good thing. All that time spent trawling through TradeMe listings and visiting open homes gives you valuable information about the market in your area. You’ll get a good sense of what houses are selling for, which suburbs are affordable, and what you want in a house.

When you do find a potential property, try not to get swept up in the excitement and forget the practical aspects. Make sure the house itself is liveable, even if it’s not in perfect condition. Remember to think about the location – not just the suburb but the street and houses surrounding the property. Check out the local amenities, like public transport, shops, schools, and parks. This information isn’t just useful for you, it’s also helpful if you ever decide to rent the property out.

6: Must-haves and compromises

It’s great to have a list to keep you on track when you’re house-hunting, but it’s important to be able to compromise as well – particularly when you have a limited budget. Make one list of must-haves, and one of bonus features, and use them to guide your decision making. It’s easy to get carried away when a house is well-presented and appealing, but that’s not the most important factor.

Be prepared to compromise on the things you can change easily – wall colors, older kitchen fittings, overgrown gardens, outdated carpet – and stand firm on the things you can’t – like location, layout, and size.

7: Trying to buy

When you find a house you love – or one that ticks the practical boxes – you might have to move fast if you want a chance at buying. Most properties are either sold at auction or by negotiation with the vendor. Auctions are usually held around a month after the property is listed, while negotiation can happen at any point.

To bid at an auction, you have to be prepared to go unconditional and pay the deposit on the day. That means you must have pre-approval for finance and have cash available to pay the deposit. You should have had a lawyer look over the LIM and other paperwork, and you should probably have had a building report done on the property. If you haven’t done your due diligence, you’re taking on a lot of risk – you could end up with a property that has serious problems or lose your deposit if your loan application is denied.

Negotiations or tenders are less pressure. Although it’s important to have your lawyer look over the documents, if you make a conditional offer on a property you’re not locked in straight away. You can set terms in the contract that give you time to talk to a lender and get a building report done, so if anything is wrong with the property, you have a way out.

Advice from the experts

When you’re doing something new and risky, it’s always a good idea to seek expert advice – and home buying is no different. Conveyancing lawyers and builders are essential during a purchase, helping you tick the boxes and avoid expensive mistakes. At the finance stage, mortgage brokers and financial advisers can help you work out a budget, apply for grants from the government, and find the best loan to get you into your first home.

Need help buying your first home? Talk to the experts at Global Finance on 09 255 5500