We hear a lot in the media about first home buyers being locked out of the market because they need to save 20% to buy a house.
Usually it’s coming from journalists who are more interested in getting headlines than helping Kiwis get ahead.
The truth is there are heaps of ways First Home Buyers can get on the property ladder without saving a huge deposit:
Welcome Home Loan
This one has been around for a long time as a way to get into a house with just a 10% deposit – and Kiwisaver can help. It’s backed by Housing New Zealand so there are a few restrictions around it.
So who’s it for? Individuals who’ve earned less than $85k and couples who’ve earned less than 130k in the last 12 months. It’s only for first home buyers and house price caps apply and vary between regions.
Welcome home loan can work great alongside Kiwisaver using the options outlined below.
Kiwisaver First Home Withdrawal
First home withdrawals are even better than Welcome Home Loans because they’re available to all first home buyers. No restrictions because you’re earning too much, no caps on house prices.
The only boxes you need to tick are:
1) you need to be a first home buyer
2) you need to have contributed to Kiwisaver for at least three years.
From there you can withdraw any contributions you have made, the 3% each year your boss has been topping up, and government tax credits as well
Kiwisaver Homestart Grant
If you’ve been in Kiwisaver for at least three years the government may also give you a Homestart Grant to help with your deposit.
It’s $3000 once you hit the three year mark, then another $1000 on top for year 4, and $1000 again for year 5. So a maximum of $5000 per person.
Be careful if you’re counting on this one though – like the Welcome Home loan there are income restrictions and house price caps.
If you’re building a new property or buying from a developer there are no LVR restrictions – the government wants more houses built so put an exemption in place for the banks.
What this means for you as a borrower is that you can consider off the plans apartments or a townhouse in a new subdivision, sometimes with as little as 5% down. And with the changes earlier this year you can even buy a newly built property straight off the developer and still get the exemption – provided it is less than six months old.
If you’re fortunate enough to have a rich uncle who is sitting on a pile of cash this can be a very clean way to get into the market. This can even be combined with Kiwisaver or a Welcome Home Loan if you’re just short of the required deposit.
Family Guarantee Loans
Your family can also help you get into a house with no money changing hands through a family guarantee loan. This one has a few requirements, firstly that Mum & Dad have enough equity in their home, and more importantly that they’re comfortable doing it.
Effectively there are two loans:
1) The bank will take a mortgage over the new purchase and lend up to 80% (so for a $400k purchase price this loan would be for $320k)
2) This loan will be over the new purchase and the family home to make up the difference – it can be up to 20% of the purchase price if you have no deposit.
This works for family as they don’t have to put cash up front and their liability is limited to only a small portion of the purchase price.
It’s also helpful to have an exit strategy in place so the guarantee can be released as soon as possible – this can be done through accelerated repayments on the deposit portion and improvements to the property to increase its value.
Just use a broker
The LVR limits are just that – limits. Banks will sometimes have capacity to lend to borrowers with less than 20% deposit without fitting any special criteria. As I’m writing this today I’ve already spoken with a couple of banks this morning who are accepting applications with 5% deposits and there is one Big 4 bank who will lend with 15% down as a blanket rule.
Talking to the banks everyday means we’re in the loop when they’re hungry for new business.
Want to know more? Call now on 0800 323 393 or request a callback to discuss your options