First home: For house and land packages, only 5% deposit is enough
- this came out in the first-ever home buying seminar held for the Indian community in the City
(caption for the above picture: Nathan Miglani addressing the gathering at the first-home buying seminar for the Indian community on April 10)
“For turn-key projects – house and land packages, you pay a deposit upfront and the remainder when the property is complete. It's important to note that you may be able to purchase such a package with as little as 5 percent deposit. And your KiwiSaver first-home withdrawal or KiwiSaver HomeStart grant can make a part or all of your deposit,” informed Nathan Miglani, from Loan Market, while addressing the gathering at a free first-home buying seminar organised by the Christchurch-based social organisation Indian Cultural Group (ICG) on April 10. It was part of a series of informative sessions ICG organises, dealing with issues of health, finances, and women empowerment, explained Sandeep Sachdev, President of ICG.
Explaining what he calls eight keys that banks consider before approving mortgages, Miglani noted, “Credit history, security against the loan, terms of loan, repayment arrangements, purpose for buying the property, capacity for repayment, and upfront deposit, are the main considerations. Most first home buyers don't have 20 percent deposit, but you will need at least 5 percent of genuine savings to qualify for a brand new turn-key property.”
After explaining the types of mortgages on offer – fixed, floating and revolving (flexible) – Miglaniadded, “Apart from turn-key or house and land packages, another option is the construction package. Designed for those buying a section and employing a builder, construction loans start as an interest-only loan to cover the purchase of your section, then allow you to draw down funds as required to make progress payments to your builder. You will need a minimum 10% deposit.”
Need help with buying your first home? Read on.
Arranging finance to purchase a property can be a complicated process - especially for first home buyers. What can help is using the services of a mortgage adviser – which is usually free if your lending is through the bank, they pay the commission; but if your mortgage adviser needs to approach a second-tier lender, there is sometimes a fee, which will be fully disclosed before beginning. This is beneficial as you save money with the right loan structure, you also save time, get better terms and conditions, it makes things simple for you, you can shop around for loans on offer, and you have a better understanding of what banks want.
Finding the right property
Once you know how much you can spend, the next step is to work out a check-list of what
you want and need in a home. Write down the things that you would like, e.g. number of bedrooms and location, then prioritise from 'essential' to 'nice to have'. Remember that buying a property usually involves compromise! Two most important factors to consider are: location and condition.
Location is one of the biggest factors when it comes to capital gain (the increase of your property's value over time). When choosing a location, convenience will be an important factor, e.g. proximity to work, school and leisure activities, but you should also think about whether the location will appeal to others if you decide to sell your property in future. Factors that make a location more appealing include goodschool zones, proximity to areas where lots of people work, e.g. the CBD, and amenities like shops and transport, and the perception of a desirable neighbourhood (which might look different depending on the type of property, e.g. a family home in a quiet suburban street or an apartment close to the city).
Secondly, you need to consider if you prefer the convenience of a new or modern property, the charm of a renovated older home or the satisfaction (and possible financial return) of a 'doer-upper'? Remember that 'newer' does not always mean better built - and an older property constructed with permanent materials may not require more maintenance than a newer home. If you're thinking of buying a 'project property', be realistic about your skills (or the expense of hiring professional tradesmen). Whichever type of property you choose, it pays to arrange a building inspection to check for any potential problems.
The purchase process
The most important step to consider here is the sale and purchase agreements. When you sign a sale and purchase agreement, you are making a legal offer to buy the property if the owner agrees to your terms and any conditions set out in the agreement are met. It's a good idea to talk to a solicitor before signing a sale and purchase agreement so that you are aware of your obligations and have a good idea what sorts of conditions should be included. Common conditions are: finance, insurance, LIM and title checks, solicitors' approval, building inspection and assignment of EQC claims.
Making the most of KiwiSaver
95% of first home buyers use KiwiSaver to help with their deposit. There are a couple of options.
KiwiSaver first-home withdrawal – you might be able to withdraw some of your KiwiSaver savings, including member contributions, employer contributions, interest and tax credits, to help you buy you first home.
KiwiSaver HomeStart grant – You may get $5,000 to $10,000 to purchase a home, or $10,000 to $20,000 for a brand new home, depending on your circumstances. The amount depends on how long you have been a KiwiSaver member and there are caps on your income and the value of the home you can purchase.
You must earn less than $85,000 before tax annually (or combined household income less than $130,000); you can use the grant to purchase an existing home up to a maximum value of $500,000 for purchases in Christchurch (or $550,000 for new builds).