Young couples

Is there any Government financial assistance for first ho... Is there any Government financial assistance for first home buyers?
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Buying our first home - We might be starting a family soon and need to consider our next step.

If you have a growing family, are about to start one, or just want more living space, you may wish to upgrade into a bigger property. Here are some questions you should keep in mind if you’re considering making the move.

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.
 

We want to own our own home. Where do we start?

The first major hurdle on the path to home ownership is working out how big a deposit you’ll need and then saving for it.  New Zealand banking regulations specify maximum percentage amounts that lenders can advance to home buyers, to reduce the risk of financial hardships and defaults if property prices fall.  Any difference between the property purchase price and the advance will be the deposit needed.

Whilst these percentages move around at times, you should aim to have a 15% to 20% minimum deposit to buy your own home. When buying a home for the first time, follow the helpful advice below:
  • Calculate how much you can realistically afford to borrow, and how any debt servicing requirements / rates will allow you to live reasonably comfortably.
  • Consult a financial advisor, friend, or family member who has bought property before. Seek out as much advice as possible.
  • Don’t financially over-commit when buying your first home. A bank or lending institution may be willing to lend you a larger amount, but you should not necessarily take the offer. Know your budget and stick to it.
  • Ensure that you have financial reserves to cover things like legal costs, moving in (and out costs), unexpected repairs and maintenance etc. 

We already own a property. Should we sell it before moving to a new home?

Finding a buyer for your current family home before purchasing a new one is usually recommended, for a number of reasons:
  • If you buy a new property first, you may find yourself in the position of having to make mortgage repayments on two houses at the same time (if your house does not sell in a timely fashion, or for the price you expect).  This might put you under unnecessary financial strain.
  • With your current property sold, you’ll know exactly how much money you’ll have available for your next property.  Being a cash buyer may give you better leverage on the pricing and terms of your new property.
Some financial advisors recommend that you never sell a property, but keep the first property as a rental, and use the income to help finance your next home.  This is only realistic to achieve if you have the sufficient financial means to do so.  Speak to a financial advisor or First National Real Estate agent for advice.

What should we consider when deciding whether or not to buy a larger home?

While moving to a bigger house can be an attractive prospect, it is also a significant commitment. When making your decision, consider the following:
  • If your current home is not big enough for the size of your family, then moving to a larger home will probably be more urgent.  This could result in you paying a higher price for your new home.  If your need is less urgent, you'll have more time to evaluate housing options, and to find a great deal.
  • While a larger home will have a number of attractions for you, it will also likely be more expensive to maintain on an ongoing basis.
  • Speak with a financial advisor to assess your current situation and see if you are able to comfortably service a bigger home loan. Consider what might happen in the event of a personal financial shock or increased interest rates.
  • Review any other debt you have (e.g. credit card, car loan, hire purchases etc.) as these debts or facilities can negatively affect your ability to borrow. Make sure debts are either paid up-to-date, or paid off entirely before investigating or applying for a new mortgage. Lenders often ask to see the last 3 or 6 months of any debt related financial statements.
  • Tools such as a home loan calculator can help you assess your options and budget for a new home. Most New Zealand bank websites make this functionality available for you to use.
If you’ve decided that moving to a larger property is right for you, talk to a First National Real Estate agent about selling your current property and finding your dream home. First National Real Estate has over 400 offices across Australia and New Zealand, with property coverage in all major towns and cities.

What else should I think about when choosing where to live?

Your choice of where to live is important.  Make sure that you consider local crime rates, and your closeness to public transport, shopping centres, schools and other relevant amenities.  Websites like Quotable Value provide free local statistical information, including breakdowns of the household age groups living in your area.
Where you live can also impact others, so consider the living locations of your friends, families, and colleagues too.

It's important that you calculate the overall affordability of the property for your budget. Affordability is the rent or mortgage payments, along with food, petrol (commuting costs), power, water, rates, and local restaurant prices.  As the prices of these items and services vary from place it place, it's helpful to do some research.

What are the key pieces of information I need when buying a first home?

There's a lot of information required when buying a first home, but luckily this information is available from a number of sources.  These sources include banks, insurance companies, real estate companies and financial advisors.

Regardless of whether you are buying a priced property, or a property being sold via auction or tender, it's important to know the following:
  • How much you can afford to borrow to buy your home
  • How large a home deposit you will need (see Question 1)
  • What other costs you will incur during the purchase of the property
  • How to go about making an offer on the property and some knowledge around the possible terms and conditions that can be included within the Sales and Purchase Agreement to give you adequate buying protection
Talk to a friendly First National Real Estate agent for further advice.

How much money can I borrow to buy a house?

It's important to know exactly how much money you can borrow before looking for your first home. This will indicate the prices of the properties you can afford.
  • For your first New Zealand home, you will typically need around 20% of the purchase price as a deposit.
     
  • A bank or mortgage broker can help you establish a realistic figure that you will be able to borrow based on the amount you have already saved and your expected future income.
     
  • You can also use an online mortgage calculator to see how different loan lengths and interest rates affect repayment amounts. Most New Zealand banks offer this functionality on their websites.
     
  • Once you've decided that you're comfortable with borrowing a certain amount, and you've found a lending organisation willing to lend to you, it is sensible to get your loan “pre-approved”. This allows you to make an offer on a house with more certainty that you’ll be able to borrow the funds required.

Can we make an offer on our next property, subject to the sale of our first?

Yes, you can make conditional offers on property, by including conditional purchase conditions into your New Zealand Property Sales and Purchase Agreement. These terms are reasonably common in New Zealand, although there are some downsides:
  • If your sale falls through, or takes longer than expected to settle, you may have to watch your dream home go to someone else.
  • If you’ve put in a conditional purchase offer, this may place pressure on you to sell faster, and for less money, than you might have otherwise sold for.
  • Some sellers, particularly in competitive markets, may be less willing to accept conditional offers. A lower offer from a competing buyer without any conditions may be more appealing because it offers a quicker sale and greater likelihood of the sale completing for the vendor.
  • If you haven’t sold your current property yet, you won’t have as much certainty about how much you can afford.  This can lead to you overextending financially, and it also limits your opportunities to bid successfully at auctions.

I’m planning to buy. What rules should I follow to ensure I make a good investment?

When you're buying real estate for investment purposes, the location is really important.  It's often said that you should buy the "worst house in the best street", rather than the "best house in the worst street", because good (or up and coming) housing areas tend to hold their value better than neighbourhoods on the decline.
Buying your home in a well-connected and popular location that has the potential for further improvement is a logical approach.  When buying, look for:
  • Houses that are close to shops, parks, good schools and transport hubs.
  • Houses or apartments that can be renovated or freshened up relatively cheaply. If buying in an apartment block, be aware of the standard of other apartments in the block, tenancy profiles (and likely noise), and amenities.
  • Real estate that is close to recreational facilities, sports clubs or other amenities that are likely to be popular with the general public.
  • Housing that is positioned for energy efficiency (north facing).
  • Homes that are well insulated, in the floors, walls and ceilings.
  • Real estate in suburbs which are likely to see significant development.  
Real Estate New Zealand provides a helpful property inspection checklist

Can my parents help me buy my first home?

Parents or other family members may be able to help you to secure a loan that would otherwise be out of your financial reach.  There are a variety of options available for parents who wish to help, which are listed below:
  • If your parents or other family members are willing, they may be able to use the equity in their own property to help you buy your first home sooner. In this instance, they would take out a mortgage on their own property (and pay necessary interest), to provide you with the cash to make up your deposit.
  • If you don’t have a large enough deposit to meet the lender’s criteria for a loan, but you do have the ability to service that loan, lenders may allow your immediate family members to use the equity in their own home as security for your mortgage. In this instance, your family members do not take out a loan themselves, but their property is used as security on the loan (and can be sold if you default).  This is more palatable to some parents / family members.
     
  • Another option is to take out a “Family Equity Loan”.  This arrangement makes yourself and your family member joint borrowers on the mortgage. Both are responsible for repayments.  The debt servicing calculations are based on the incomes and expenses of all borrowers.
With all of these options there are risks involved for your family member. If you can’t keep up with your mortgage repayments, your parents may be required to pay off the remainder of your loan or, even worse, sell off their own home to cover your debt. 

Can I use money in my KiwiSaver account to help buy a home?

If you’ve been in New Zealand's KiwiSaver superannuation scheme for at least three years, and are buying your first residential property (to live in), you may be eligible to withdraw money to put towards a home loan deposit. Where this is possible, you can withdraw your own contributions and your employer’s contributions, but not the $1000 New Zealand Government kick-start or any tax credits.

The KiwiSaver website provides further advice about this.
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