Ready yourself for house hunting
Save a deposit
The first step towards purchasing a new home is to save a deposit that you can put towards the purchase. Generally, banks prefer to see at least 5% deposit. This means 5% of the total house purchase price has come from your own savings which you have saved over a period of time.
Apart from the 5% deposit which should be your own savings, the remaining deposit can come from the following sources which are acceptable to the banks:
- Your KiwiSaver contribution (you are allowed to withdraw your KiwiSaver contribution if you have been contributing towards KiwiSaver for at least 3 years).
- Housing New Zealand Subsidy (you are eligible if are a first home buyer, have been contributing to KiwiSaver, and your house price is below $485,000) – Refer to Housing New Zealand rules.
- Money gifted by a family member, relative, or friend.
- Money is given by a family member, relative or friend by using the equity in their property.
- Money from the sale of your previous property.
A large deposit can provide you the following advantages:
- Easier to get home loan – Having a good deposit shows that you have a strong savings history. This is what lenders prefer when giving someone a home loan.
- Save on monthly repayments and interest – The bigger your deposit, the less you have to borrow, and that means lower monthly repayments. A large deposit will help you to repay the loan quicker and pay less in interest charges.
- Your choice of lenders and a lower interest rate – Having a bigger deposit gives you a wider choice of lenders and could help you to negotiate a lower interest rate.
- Reduce low equity fee – If your deposit is less than 20% of the property’s value, you have to pay Low Equity Fee to the bank. This fee is typically between 0.5-2% of the home loan you’re applying to take from the bank and depends on your deposit. A bigger deposit close to 20% can keep the low equity fee to a minimum.
Understand home purchase costs
When you’re buying a new home, the house itself is not the only cost you will incur. There are other costs that you need to be aware of and factor into your budget from the beginning of the process.
Common costs you may run into you get the keys to your dream home:
Before you make the final decision on purchasing your new home it’s wise to have a building inspeciton done. A building inspection may show up:
- Building defects – like leaky buildings
- Any outstanding Code of Compliance approvals
- Any Resource Consent issues
- Pest issues
Generally a building inspection will cost around $500, but could save you thousands of dollar down the line.
Home Loan Costs
Your lender may charge some upfront loan costs such as:
- Loan application fee
- Low equity margin fee: if you are putting less than 20% deposit, banks charge 0.5-2% of the loan amount in low equity margin fee. Some banks charge this fee upfront and other banks add it on top of the regular interest rate your mortgage instalments will be based on.
If you pay less than a 20% deposit towards the purchase price or are purchasing a property directly from the seller without involving a real estate agent, banks will ask you to get the property valued. This valuation needs to be completed by a registered valuer. Generally, valuation costs can vary between $500-$600.
You’ll need to engage a solicitor to explain to you your rights before you accept the loan and sign on the dotted line with the bank.
Once you’ve bought a home the costs don’t end there, you will need to be prepared for these costs:
Moving in costs
When you’re ready to move into your new home you’ll need to pay a number of costs. These include furniture removal, utility connections – gas & electricity, telephone, internet, council rates and water rates.
Home and contents insurance
A must-have that protects your largest asset. If your home or belongings are damaged by fire, storm, earthquake and in some cases, flood, or you experience loss through burglary you’re home and contents insurance will help you to recover your losses.
Understand what you can afford
Working out your borrowing power is an important step when looking at buying your first home. It helps you to narrow down the property search and allows you visualize what the financial commitments of a mortgage will be.
Your borrowing power is typically based on the following:
- Financial commitments
- Credit history
- Loan type
- Employment history
- Family size
- Residency status
Start forming a budget
You need to work out what your day to day living costs are and what you will be able to save after paying these expenses as well as a mortgage repayment. Ideally, this should serve as a guide on how much you should borrow rather than how much you can borrow.
Prepare for the unexpected
Once you know how much you should borrow, you need to factor in potential events such as interest rate rises, work changes or additions to your family to allow for a financial buffer. Ideally, you should still be adding to your savings after paying for all your living expenses, day to day bills, and mortgage repayments.
To see what you can afford to borrow, enter your details into our mortgage calculator.
Sources of income
The most important thing banks see when giving the home loan is your income which shows your ability to repay the loan and how much you can afford to borrow.
Banks consider the sources of income listed below as potential income(s) when assessing your home loan application.
Salary or Wages
Your annual gross salary which will be verified from your payslips.
Business Income or Contract Income
If you are self employed or run a business, banks want to see at least 2 years of financial statements prepared by an accountant to see the net profit your business makes.
If you are on a contract, banks are keen to see your contractual agreement to see the length of your contract (ideally this needs to be at least one year) and the income you will earn from the contract.
If you are going to rent out the property you are purchasing, banks will ask for a rental appraisal from a real estate agency to determine the rental income the home will generate.
If you are going to rent out the rooms in the home you are purchasing to someone (boarder) and live in the same home, bank will ask for a letter signed by the boarder confirming their intent to stay and how much rent they will give you on a weekly basis.
Commission/ Bonus/ Overtime
If you are paid a bonus or commission in your job, banks want to see at least 2 years of income summary to ensure that you are paid the bonus or commission on a consistent basis.
Superannuation / IRD Accommodation Supplement / WINZ Benefit
Just because you are retired, not working, or have less income, doesn’t mean a bank will not give you home loan. Banks consider NZ Superannuation, WINZ Benefit, IRD Accommodation Supplement, and Working for Families credit as potential sources of income when giving a home loan.
Understand loan application process
While you are busy house hunting to find your dream home, it is important to understand the home loan application process to ensure your paperwork is correct and you know exactly how much bank is willing lend you. While the home loan application process varies from bank to bank, there is a general series of events that you should expect.
When you’re house hunting, you need to work out in advance how much you can borrow from the bank. This will ensure you’re looking for a house within your budget as well as providing you a realistic goal to work towards. You should also investigate your eligibility for any first home owner grants and incentives. We’re here to help you with the pre-approval process so that you’re approved for the maximum amount you can afford..
Home loan application
If you need home loan to buy your home, you’ll need to submit a loan application with the banks. We’ll assist you with the lodgement process and help you organise the necessary paperwork that goes along with the application.
Bank approval process
The bank assesses your application along with the submitted paperwork, which generally takes 3-5 working days. The bank then provides their response and you may receive conditional approval. This means the application is approved in principle, but is subject to further paperwork being received (usually a sale and purchase agreement as well as a property valuation).
Sale & Purchase Agreement
Once you have found your dream home, you need to put an offer on the property either through auction process or private negotiation and sign a sale and purchase agreement. A copy of the contract or agreement containing your property’s details needs to be submitted to the bank to ensure bank is happy to lend you the money against the property.
If you are contributing less than 20% deposit, the bank will request you to provide a valuation report from a registered valuer. This is usually organised in around 3-5 business days subject to availability of the valuer and the property for inspection.
Finally, the bank will give an unconditional loan approval. This is the green light to go ahead with the loan. We’ll give you the good news so you can start the preparations for moving into your new home