Navigating the property market for first home buyers in New Zealand can be challenging. This guide aims to provide you with a comprehensive understanding of the mortgage process, from determining your eligibility to understanding the various loan options available. By following these steps, you’ll be better equipped to secure your dream home in New Zealand.
DETERMINE YOUR ELIGIBILITY
To be considered a first home buyer in New Zealand, you must meet the following criteria:
* You have never owned property in New Zealand or abroad. (There are often exemptions here)
* You are a New Zealand citizen or permanent resident.
* You intend to live in the home for at least six months after purchase.
SAVE FOR A DEPOSIT
Saving for a deposit is the first step towards home ownership. Banks typically require a minimum deposit of 20% of the property’s value, although it’s possible to secure a mortgage with a lower deposit (10%) through government schemes and lender mortgage insurance.
UNDERSTAND THE GOVERNMENT SCHEMES
The New Zealand government offers several schemes to assist first home buyers:
* First Home Loan: This scheme allows first home buyers to secure a mortgage with as little as a 5% deposit, subject to eligibility criteria and income caps.
* KiwiSaver HomeStart Grant: KiwiSaver members can apply for this grant, which offers up to NZD 5,000 for purchasing an existing home or NZD 10,000 for a new home.
Before you start house hunting, it’s crucial to get an idea of how much a lender will approve. mortgage pre-approval is one way to ensure lending if it is a tight deal, otherwise a good advisor can give you a very close figure for you to start your search.
A live deal (signed sale and purchase agreement) is much more powerful that obtaining a pre-approval and most times will be done in less than half the amount of time.
CHOOSE THE RIGHT MORTGAGE TYPE
There are several mortgage types to choose from in New Zealand:
* Fixed-rate mortgage: The interest rate is fixed for a specific term, offering stability and certainty in your repayments.
* Variable-rate mortgage: The interest rate fluctuates according to market conditions, which can result in lower repayments during times of low-interest rates.
* Interest-only mortgage: You only pay the interest on the loan for a set period, after which you begin to pay off the principal. (primarily for investment properties)
* Split mortgage: A combination of fixed and variable-rate mortgages, allowing you to take advantage of the benefits of both types.
COMPARE LENDERS AND MORTGAGE OFFERS
Seek advice from a good, reputable mortgage broker, who can help you find the best deal for your circumstances. Remember, your main bank, may not be the best place for your mortgage.
It is often a good idea to separate banking (one bank per applicant) this allows better options, especially when applying for a loan with 10% deposit
FIND A PROPERTY
It is highly recommended you use a Buyer’s Agent. This is a real estate Agent that works specifically with buyers, they help you negotiate the deal and work for you, not the vendor of the property.
APPLY FOR A MORTGAGE
Once you’ve chosen a lender and mortgage offer, you’ll need to submit a mortgage application. The lender will assess your credit history, income, employment status, and other financial factors to determine your borrowing capacity and whether they will approve your loan. It is important to discuss this process with a broker, so the correct information is presented to the lender and any changes that need to be made, pre application can be made.
OBTAIN A PROPERTY VALUATION AND INSPECTIONS
Before finalising the mortgage, the lender may require a property valuation to ensure the property is worth the loan amount. It’s also advisable to get a building inspection to identify any potential issues or repairs needed. A valuation must be obtained for any loan more than 80% lending.
COMPLETE THE LEGAL PROCESS
Engage a solicitor or conveyancer to handle the legal process, which includes reviewing the sale and purchase agreement, conducting property searches, and ensuring all necessary paperwork is completed. The Solicitor will also act as the intermediary when settling the finance and also help with the Kiwisaver withdrawal process.