A major step to securing your first home is preparing your house deposit. For most of us, even thinking about that amount of money sends us running. If you are one of these people, don’t stress - there’s an abundance of ways to prepare a deposit, especially if it’s for your first property.
Why do I need a deposit
It's simple really, banks won’t lend the full amount of the house purchase price or value. As a result, banks require buyers to pay a deposit on their property in order to receive a loan for the rest of the house price. The deposit is your contribution to the purchase price and means that you will own a portion of the home.It also means you then have a personal stake in the property, so the risk is reduced for the lender.
Do I start saving now?
It’s easy to get wrapped up in the excitement of scanning house listings online but at what point do you actually need to sort out your deposit? This is completely dependent on your circumstances and how fast you’re wanting to buy a home. But the earlier you start the better!When do I need the deposit?
Its always preferable to have your deposit under control when you start house shopping, then you know what you have to spend and the process will run more smoothly.However you don’t actually hand over any money until you are part way through the process. Then on move in day you will be required to pay the remainder of the purchase price and this is when you will officially own the property. This normally happens one to four months after the sale and purchase agreement is signed, but it does vary between sales and should be outlined in your contract of sale.
How much do I need?
The truth is there is no perfect amount but the more you have the easier it can be. Traditionally, a 20% deposit has been the ideal minimum. Deposits of 20% or more avoid extra costs and generally guarantee you access to their most competitive rates. But the reality is, saving that kind of money can be near on impossible. The good news is there are ways to get a mortgage if you don’t have 20%.We often work with 10% and if you’re good with money and on a decent income, we may also be able to work with deposits as small as 5%. Keep in mind that borrowing more than 80% of the purchase price is more of a risk to the lender, so it comes with costs. Larger deposits generally result in cheaper mortgage rates, so we recommend trying to source together extra funds prior to committing to a larger loan. Read on to see how you can get the deposit together.
Ways to source your deposit
Now that we’ve covered the ins and outs of how deposits work, it’s time to dive into the good stuff. Other than chipping away at your savings every week, how do you actually get the money together for a deposit?There’s no escaping it, old fashioned savings are crucial when it comes to buying your first home. Sure, there may be grants and loans you can apply for, but some banks will want to see proof that you’ve saved at least 5% of the house value. Having savings to lean on also means that you can cover more costs and pay less interest in the long run.
Saving money isn’t a quick fix, so it’s best to start as soon as possible. Here are a few of our top tips to get you started:
- Set a savings goal.
Identify the price range you want to buy in, work out how much you would need to pay for a deposit in dollar figures and work towards that sum.
- Use a budgeting tool.
Click on the highlighted title and try our budgeting tool and work out where you could be saving.
- Set up an automatic transfer.
Treat your savings like any other bill. Starting an automatic transfer on pay day takes the hassle out of remembering to save and will help you resist the temptation of overspending.
- Consider opening a secondary savings account.
If you know that you’re likely to dip into your savings, try putting it at an arm’s length and opening a secondary account that is not linked to your internet banking.
KiwiSaver First Home Withdrawal
If you have been a KiwiSaver member for at least three years, you may be able to withdraw your savings from your KiwiSaver account to help purchase your first home. This option is for first homes only, not investment properties, and you need to be planning on living in the house for at least six months.KiwiSaver HomeStart Grant
As well as withdrawing KiwiSaver contributions, you may also be eligible for a KiwiSaver HomeStart grant.There are two HomeStart grants that you may be entitled to:
$3,000 - $5,000 grant for existing homes
KiwiSaver members wanting to purchase an existing property are entitled to $1,000 for each year of your KiwiSaver membership, up to 5 years per member. While grants can be combined, the total amount that multiple members can apply for is $10,000 for a single dwelling.
$6,000 - $10,000 grant for new homes
If you plan to build or purchase a new property, or purchase land to build on, the HomeStart grant is effectively doubled. This equates to $2,000 per year of KiwiSaver membership, up to 5 years per member. The total combined amount that multiple KiwiSaver.
The Bank of Mum and Dad
The easiest way to get your deposit sorted (and one that we often arrange for our first home buyers) is asking your parent or family member to gift you part of the deposit, it can range a lot in the amount but is often the best way to top up the deposit to the amount you need and then you can arrange to give it back to them at a later date.Let’s talk!
Buying your first home is exciting but as we know, it can also quickly become overwhelming, especially when you start talking numbers. If you’re finding yourself confused, we’re more than happy to help. We can give you a hand with working out how much you can borrow and what grants and loans you’re eligible for. We’ve even got a free First Home Buyers Guide with all the top tips and tricks for getting your foot on the property ladder.Richard Petersen
Director
Phone: 0800 337 426
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