First Home Buyer Series – One: Types of Deposits:
So you’ve made the decision to make your dream a reality and you're looking to buy your first home. This is such an exciting journey but there is so much to learn and consider – congratulations on taking your first step!
We know it can be very overwhelming but throughout this first home buyer series, we will look to help you navigate the process, step by step while taking out all of the guess work with your options. Let’s dive in and start exploring what this journey could look like for you!
Deposits:
There are a number of ways to come up with a deposit for your first home, you may even have a combination of options, but do you know what all of these options are?
Cash Savings:
Most banking providers prefer that you have your own cash savings of at least 5% (or more) to put towards your deposit. This demonstrates to the bank/lender that you have capacity and discipline to manage your finances. You will need to be able to prove you have genuine cash savings and you will be required to provide a copy of bank account statements to evidence your savings history.
Kiwisaver:
The most commonly used form of top up or deposit towards purchasing your first home is utilising your Kiwisaver funds. You can apply to withdraw your funds if you have been a member of the scheme for 3 years.
Gifted Funds:
You may be lucky enough to have a family member gift you a sum of money to be applied to towards your deposit. In this case, you will be required to provide a letter of confirmation or gifting certificate which is a statutory declaration signed by the person gifting the funds and confirming there is no requirement to repay the monies.
Loan from Family:
A family member may be able to help you with some gifted funds but the intention is that these funds are paid back (not gifted as explored above). This option will require a Deed of Debt of Acknowledgement to be drawn up by a lawyer and deemed satisfactory to the bank/lender. The bank is looking to ensure there is no short-term recourse on the funds or anything that requires you to repay the funds in the short term which would impact your servicing. Common practice is that the loan is not repayable until the property is sold. You should seek guidance from your lawyer if this option is applicable to you.
First Home Grant:
If you’ve been contributing to your KiwiSaver for at least three years, you may be eligible for a First Home Grant. How much you receive depends on things like your income and the type of home you want to buy.
To be eligible for a First Home Grant, you must:
be over 18
have earned less than the income caps in the last 12 months
not currently own any property or land, including property owned by a spouse or de facto partner. Ownership of Māori land is not included
have been contributing at least the minimum amount to KiwiSaver (or complying fund or exempt employer scheme) for 3 years or more
purchase a property that is within the regional house price caps
agree to live in your new house for at least 6 months.
In the 12 months before you apply, you must have earned:
$95,000 or less before tax for a individual buyer
$150,000 or less before tax for a individual buyer with one or more dependents
$150,000 or less before tax for 2 or more buyers, regardless of the number of dependents.
You may be eligible for a maximum of up to $5,000 for an existing property or up to a maximum of $10,000 for a new property.
Parent Assistance / Equity Gifting:
Most banks offer an option where family could come on board to assist through a parent assisted home loan to raise the shortfall of the deposit to make up the 20% deposit for a standard home loan. Under this type of home loan, you would look to split the home loan as detailed below:
Example:
Say you purchased for $1,000,000.00
20% of $1,000,000 = $200,000.00
Current Deposit $165,000 - leaving you funds for your contingency
=$35,000 shortfall for the 20% deposit
We would look to structure 80% of the new purchase solely in your names:
$1,000,000 at 80% = $800,000.00
Second loan would be applied using Families home as security:
$35,000 – loan documented with you as the borrower– Family as the guarantors
Under this type of home loan option, you would be seen by the banks as a client who has 20% deposit. You do have to meet criteria for the whole loan amount. Family would need to meet criteria for the guaranteed portion of the loan amount ($50,000)
We are also potentially limited to the home loan provider that the family are with – most banks would want the whole home loan with them under this type product.
Time to make your move?
There can be a lot to think about when it comes to purchasing your first home but when you’re ready to think about taking the next step, get in touch. We can help you work through all your options and guide your through every step of the process. Send us a no obligation email to discuss further - enquiries@mortgageladies.co.nz.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.