Knowing you want to buy a house is one thing, but getting there can feel like an overwhelming task. So, let’s keep things simple! Lenders look at three things when reviewing a mortgage application: income, deposit and financial history. Getting each of these areas into shape prior to applying for a mortgage will make the difference between a yes or a no from a lender. The steps below will help you get in the best position possible.
1. Look at the market
Looking at what properties are selling for is a great way to start things off. It will give you an idea of how much deposit is needed, and what sort of properties are in your price range. It can also be very motivating as you start to envision yourself in your new home.
2. Estimate your deposit
Once you know the market, you can estimate how much you need to save for a deposit.
There are sometimes opportunities for first home buyers to borrow with a deposit as low as 5%, but 10% is more commonly the minimum for first home buyers. 20% deposit is preferred and is the standard minimum for people who aren’t buying their first home
There are always exceptions though! The government has incentives in place for people to buy new builds and lenders have time dependent offers that become available from time to time. If needed, we can look into any options available for you. As a starting point, aim to save 10% of your estimated purchase price. Note that mortgage pre-approvals will always be at the 80% loan to value ration (LVR).
3. Grow your deposit
Look into all options available to help grow your deposit:
- Identify how much you can save each month. Every payday, transfer the amount straight to savings to help you stay on budget.
- Check your eligibility for the government’s First Home Grant and First Home Loan*
- First home buyers can withdraw KiwiSaver funds* for a house deposit if you’ve been in the scheme for three years or more.
If you aren’t already a KiwiSaver member, it’s the key to your retirement and we strongly recommend you join. Belonging to KiwiSaver will not only will help you in retirement, but gives you access to “Free Money” in the form of the Government contribution. The Government contribution will help you grow your deposit and then fund your retirement. However, if you plan to buy a house earlier than the three year deadline you will need to save your deposit outside of KiwiSaver.
*Building on Basics can help you apply for the first home loan grant and for your KiwiSaver withdrawal. If you’re not already a KiwiSaver member or you’re not sure if you’re in the right scheme, we can give you the advice and support you need. Check out our blogs on the topics, Why is it important to get financial advice for my KiwiSaver? First Home Grant – what’s the deal?
4. Maximise your income
Sometimes, improving your income servicing, doesn’t mean earning more money. You can increase the amount of debt your income will support, by closing down any after pay or buy now pay later accounts and cancelling overdrafts and credit cards. In the very least reduce the limits as much as possible. Lenders will assume that you will max out all credit facilities and will minus the repayments when calculating what your income can service.
5. Put your best foot forward
When banks look at your financial history, they’re wanting to find out how risky it would be to loan you money. They do this by checking your credit history and checking your spending. Lenders look to see that you pay your bills on time and operate your accounts within the account limits.
Check your credit report
Checking your credit is easy, you can get your credit report using free services like Centrix. Check the report is accurate and deal with any credit issues such as unpaid bills you weren’t aware of. Late payments and bad account conduct can reduce your options of where you can get finance, but don’t despair! If you have bad credit issues, there are lenders who offer mortgages to applicants with bad debt, at a cost.
In the meantime, build a good record by managing your accounts within their limits and by always making payments on time. We even have access to lenders that will provide lending on the very first day you come out of bankruptcy.
Get your spending in hand
Lenders will look at your bank accounts and spending behaviour. While lenders are more relaxed than previously, the CCCFA still requires lenders to look closely at your spending. An easy win is to check all your subscriptions and get rid of any you don’t use. From there, reduce any unnecessary spending. If you struggle to manage your spending, you’re not alone. As always Building on Basics is a judgement free place for clients to get financial advice, and Sorted.org.nz has some great resources to help you understand and get control of your spending.
6. Get expert advice
When you’re ready, get in touch. We will look at your situation and identify if there are any tweaks you could make to get into a home faster. The sooner you get advice and a plan the sooner we can get your into your own home.