If owning your own home seems like a far-off fantasy, don’t despair just yet. With a solid plan, a few tips up your sleeve, and some serious discipline, the journey to home ownership can become more realistic.
In this blog, we’ll cover off our tips on how to budget, save, and which schemes and government grants you could qualify for to help make it happen.
The Current State of Home Ownership
Home ownership used to be the expectation for most Kiwis. But the 2018 census revealed that times have certainly changed:
- Only 64% of New Zealanders live in a home they own - the lowest rate of home ownership in almost 70 years.
- The age groups most affected are those in their 20s and 30s.
- The number of homeowners aged 35-39 dropped from 79% in 1991 to 59% in 2018.
With house prices rising so rapidly, it can seem that home ownership is out of reach - you have to save for a deposit, pay rates, insurance, maintain the house and the property, and commit to a large mortgage payment for a significant chunk of your life.
But there are often serious benefits to being a homeowner. According to the 2018 census, households that rent usually spend a larger proportion of their hard-earned income on housing than homeowners do. After accounting for the increasing value of the home versus the cost of mortgage interest rates, we often pay more in the long run to live in someone else’s home. On top of that, rental homes tend to be damper, colder and you may have to deal with an absent landlord.
Buying a home is one of the biggest financial achievements many of us will make. It might not be easy, but if owning your own home is one of your goals, BetterSaver is here to support you.
BetterSaver’s Step-by-Step Guide to Saving for a Home
Step 1: Budget
We know it’s obvious-but you’ll never start saving if you don’t take an honest and complete look at what you’re spending. It’s important to reward yourself for working hard - but you need to budget it in so that you are still managing to put aside some savings. Top tip- make use of budgeting apps that help do this for you.
Step 2: Save
Kiwis are notoriously bad at saving - but this doesn’t have to mean you.
Saving isn’t always easy, but it’s important to prioritise saving a budgeted amount each paycheck. We’ve got some savings strategies for you over here and some specific practical tips to help you get started saving now. If you’re struggling to save and plan to use your KiwiSaver to buy a home, increasing your KiwiSaver contribution rate is one way to bump up your deposit savings.
Most banks require a 10-20% deposit to get a home loan. So, if you’re looking at buying a $600,000 home, you need to save between $60,000 and $120,000. Stay with us here - we’ll come back to that in a minute.
Besides the deposit, there are a few other expenses to factor in.
- Property inspection. While you should definitely bring along someone you trust to take a look at your potential home, it’s important to do your own research even if the seller has a recent report. If you choose not to get an accredited property inspector to make sure your potential home complies with NZ standards, you’ll be buying at your own risk. This will likely run $400-$800.
- It’s also a good idea to get a Land and Information Memorandum (LIM) if you’re serious about a property. This comes from the council and shows the zoning, natural features, resource consents and planned developments. Better to know ahead of time if you’re sitting on flood plains or your lovely view is going to be ruined with an apartment block. Expect a $250-$450 expense.
- Lawyer - you might want one to understand that LIM.
After purchase expenses:
- Rates, insurance, maintenance.
- Unexpected mishaps - like your little niece comes to visit and finds some paint and decides the house would look prettier in that colour.
- Mortgage. Duh. But before you buy, check the current rates and use a mortgage calculator to see what sort of payments you’re committing to.
Alright, we’ve faced the facts about costs. Time to get to the good stuff.
Step 3: See What Government Help You Qualify For
By now you’ve probably heard that you can withdraw your KiwiSaver for a first home deposit. If not, check out this article where we tell you all about how that works.
But KiwiSaver offers more than the use of your funds.
If you qualify for a KiwiSaver First Home Grant, you can get up to $20,000 that you don’t have to pay back.
How do I get this First Home Grant, you say? Buckle up while we break it down for you.
- You have to have been a KiwiSaver member for at least 3 years. Five is better, because the amount you receive is set for 5+ years, whereas you get a little less for a 3- or 4-year membership.
- Your income must be less than $85,000 before tax for an individual or $130,000 for a couple.
- You have to live in the home for at least 6 months.
- The property you purchase has to meet regional house price caps. In the Auckland region, this is $600k for an existing property or $650k for a new one.
- You have to prove that you have a deposit of 5% of the purchase price. This can include your KiwiSaver withdrawal and the money from the First Home Grant.
If you’re buying an existing home, and you have been a member for 5 years, you may be eligible to receive $5,000 as an individual or $10,000 for two or more buyers. But if you’re purchasing a brand new property, that amount doubles to $10,000 and $20,000 respectively.
Apply for pre-approval before you start looking at properties to make sure you don’t get your heart set on something outside of your actual price range. You can apply after you’ve made an offer on a property, but make sure you do it at least 4 weeks before the settlement date. You can’t apply for it after that.
First Home Loan
A 20% deposit isn’t a set-in-stone requirement. Kāinga Ora underwrites loans so that your bank can issue a loan with a deposit of as little as 5%. This puts obtaining a loan for a first home within reach for a lot of people.
Qualifications for the First Home Loan are similar to the First Home Grant when it comes to income requirements, regional price caps, having a 5% deposit and living in the home for 6 months.
In addition, you have to meet lending criteria from your bank. You’ll have to pay a 1% Lender’s Mortgage Insurance and probably a loan fee to your bank. Usually these can be rolled into your home loan but you’ll have to check with your specific lender.
Step 4: Talk to an Expert
Once you’ve saved the required money and done your homework by applying for the First Home Grant and First Home Loan, it’s a good idea to talk to a mortgage broker. Brokers have relationships with many lenders and can sometimes get you more competitive rates than you could on your own, as well as offering valuable advice about the borrowing process to help you navigate the complicated home loan landscape.
Save Better with BetterSaver
With careful planning and hard work, you can be on your way to homeownership. BetterSaver is here to guide you to make sure you meet your savings goals for homeownership and retirement by maximising your KiwiSaver.
Take our Fund Finder quiz today and we’ll find you a better KiwiSaver fund in less than 5 mins.