So you’re thinking about buying your first home but you’re not sure where to start. Buying a property can feel like a daunting and complicated process – especially when you haven’t bought before. If you’re a first home buyer who’s ready to start trying to understand where to start, we’re breaking it down into three easy steps so you can get started on the right track.
Step One: Start saving for a house deposit
To get a home loan, generally, you need a deposit of 20% of the property’s value – but it’s all relevant to your situation. The great thing about a new build property is the industry standard for a deposit is only 10% – although there may be some exceptions.
First things first, set a savings goal.
To set a saving goal you need to figure out what you can afford. Most lenders will need a minimum deposit of at least 10%. So, if you’re buying a house worth $600,000, you’ll need to save a deposit of at least $60,000.
Remember, the bigger your deposit, the less you’ll pay in the long term. So, you don’t want your mortgage repayments to eat up too much of your gross income. You’ll need the extra cash to cover any surprise expenses that may pop up and to make sure you can cover repayments if the interest rate goes or your income goes down.
Loans that are more than 80% of a property’s value tend to have higher charges because there’s a bigger risk for the lender. It’s important to note these charges can vary – some banks charge for lenders mortgage insurance while others increase the interest rate to cover the risk.
Work out what you can put towards a deposit
The first step to buying a property is working out what money you currently have to put towards a deposit. Your deposit can be a combination of your cash savings, Kiwisaver and your first home starter grant if you’re eligible – plus any cash gifts/assistance from family.
Take a look at the following schemes in NZ created specifically to help first home buyers:
Step Two: Get mortgage pre-approval
After you’ve secured your deposit, it’s time to get pre-approved.
A pre-approval is an acknowledgement from that bank that you can borrow an agreed amount – provided the property you purchase meets its home lending criteria and general terms and conditions.
Note that pre-approvals typically come with a set of conditions you’ll need to meet in order to finalise your home loan.
How to get a mortgage pre-approval
You get pre-approval by applying to a bank or lender. They’ll assess your finances and then let you know the amount you can borrow up to. A pre-approval is just that – a pre-approval. You’ll still need to talk to them again once you’ve found your home for final approval.
It’s a good idea to apply for a home loan before you start looking at houses so you have an idea of what you can afford. This will help you narrow down your house hunting. Remember – your pre-approval limit is your maximum limit, not a target. A more expensive home doesn’t always mean a more comfortable home.
The bank VS mortgage broker debate
A mortgage broker is a free service as they get paid by banks. Talking to a mortgage broker can increase the chance of a successful application the first time. The advantage of speaking to a mortgage broker is they know the interest rates and application criteria for different lenders and can negotiate on your behalf.
If you’re looking for a recommendation, we’d recommend Squirrel – we’re not affiliated with them in any way, but we’ve always had great experiences with them personally, as have many of our clients. They’re also unique as they’re not commission-based brokers – they won’t be incentivised by the banks to go with a certain lender.
They can help you put a loan application together, or find a loan if a bank says no – and even get a better deal on your loan than you would have if you’d gone straight to your bank.
Step Three: Consider your broader requirements
This is the part where you might have to give yourself a bit of a reality check. It’s pretty likely that your first home won’t be your dream home. It’s important to think about the difference between your wants and needs when getting onto the property ladder.
What are you willing to compromise on to secure your first home? $700,000 in Auckland CBD will barely buy you a 50m2 apartment, compared to 15 mins from the CBD you could buy a brand new two-bedroom townhouse.
Do you need to be close to a motorway, or public transport? Do you really need 4 bedrooms over 3? Is a garage important to you, or will street parking suffice?
The answers to these questions will help steer you towards different styles or locations. Sometimes dropping a bedroom or an extra bathroom means you can get a better location. Settling for something a little further out than you wanted might get you the dream kitchen you’ve always wanted. Go into your house hunting with an open mind rather than a shopping list – you never know what could surprise you.
It’s also important to take your “dream home” goggles off and look at your first property more like an investment property. What’s the resale value or the rental potential?
Want to take a deeper look at the process?
So now you know your first home journey ABC’s, it’s time to take a deeper look at the whole process.
We’ve created the SM Property First Home Buyers Guide. It’s packed with even more information and tools to help you get started on your home buying journey. Click here to download the guide.
Ready to take the next step? Scottie has nearly 10 years of experience in property investment and sales. If you need some help in trying to find the right home – or if you just have other questions you’d like answered contact us.