You may have heard that you can use your KiwiSaver to help buy your first home. But do you know how it works? Do you qualify? How much money can you get?
It can be confusing. We’re going to clarify everything you need to know to use your KiwiSaver for your first home so you can be confident you’re making the best decisions.
Are You in the Right Fund?
First things first – if you’re looking to buy your first home, you need to make sure you’re in the right fund. The last thing you want when you find the perfect home is to see a surprise drop in your balance that means you don’t have a deposit.
High risk funds will see greater growth over time, but you will also see drops in your account balance. Low risk funds are for those seeking steady, slow growth without much fluctuation. It’s critical that your fund’s risk level matches your timeline for withdrawal.
It’s pretty clear that if you’re planning on withdrawing your KiwiSaver for a house within the next few years you want your balance to be relatively steady now. If your timeline for a purchase is more likely to be ten years down the road, you have time to ride out the fluctuations of a higher risk fund for a bigger balance later.
Before you start house hunting, answer the following questions:
● What type of fund are you invested in?
● Who is your KiwiSaver provider?
● How long have you been contributing to KiwiSaver?
● How much do you have in your balance?
The answers to these will guide you to using KiwiSaver to buy your first home.
KiwiSaver First Home Withdrawal
Do you qualify for a first home withdrawal?
The first hurdle to qualifying is that you must have been a contributing member for at least three years. They don’t have to be consecutive years, but you have to have made contributions for three years minimum in total.
Next, you have to intend on living in the home. You can’t currently use your KiwiSaver for an investment property, so don’t bother planning on renting it out. Also, the house you purchase must be in New Zealand, and you have to leave at least $1,000 in your KiwiSaver account.
Finally, it must be your first time owning a property (or land) and your first time withdrawing funds from your KiwiSaver. It’s called a first home withdrawal because it’s really meant just for your first home – a one shot deal. (If you have previously owned a home or land you aren’t automatically disqualified. Kainga Ora can approve you if you meet certain conditions.)
How do you get your KiwiSaver funds out?
The first step is to talk to your KiwiSaver provider. They will give you an estimate of how much you can withdraw, which is important to know what you will be able to afford.
To access your funds, apply through your provider by filling out a withdrawal form. It takes up to 10 working days to process a withdrawal. Your withdrawal goes to your solicitor, who will hold it in a trust account and forward to your bank when the deposit is required. It’s as easy as that.
Key things to remember
➔ Allow enough time.
A minimum of ten working days before settlement is necessary to process the withdrawal application.
➔ Fill out the application correctly.
Incorrect or missing information can cause unnecessary delays.
➔ Have a plan in case your funds do not arrive in time.
This is important. If your KiwiSaver funds do not arrive from your provider in time for settlement, you will not be able to use your funds towards the purchase of your home. In this situation, you can either:
Cover the shortfall some other way
Delay settlement until the money arrives and pay the penalty interest, or
Don’t buy the house – in which case it’s likely you will owe the vendor damages.
KiwiSaver First Home Grant
Another way having a KiwiSaver can help you buy your first home is through a grant. A grant is money you don’t have to pay back, and it can be given on top of your withdrawal - but again there are qualifications you must meet.
Qualifying for a First Home Grant
Just like for a withdrawal, you have to have contributed to your KiwiSaver for a minimum of three years. You must have contributed the minimum contribution each year which currently is 3% of your income.
There are income caps for single and multiple buyers as well as house price caps which vary region-to-region. You have to prove that you have at least a 5% deposit (which can be your KiwiSaver first home withdrawal) and again, you can’t buy an investment property – you have to live in the house at least six months or pay back the grant.
How much can you get?
You can get from $3,000 to $10,000 depending on your circumstances.
The major difference is whether you are purchasing an existing home, a new home or land on which to build a home.
If you’re buying an existing home, you can receive $1,000 for each year you have contributed to KiwiSaver up to 5 years, so this will range from $3,000 to $5,000. If you’re buying land or a new home, you can get $2,000 for each of your contributing years, up to 5 years, so this will range from $6,000 to $10,000. And if there are 2 or more eligible buyers, you can each get the maximum you individually qualify for.
Key things to remember
➔ Get pre-approval before you start looking.
This can speed up the process and ensure you’re looking at the right price bracket for you.
➔ Allow enough time.
Payment won’t be made after settlement so it’s crucial you know your deadlines.
➔ Apply through Kainga Ora.
Unlike the first home withdrawal, you don’t apply through your provider. First home grants go through Kainga Ora.
Is It Wise to Make a KiwiSaver Withdrawal for Your First Home?
Now that you know the ins and outs of making a KiwiSaver withdrawal for your first home, is it the best thing for you to do?
Everyone’s situation is different. It’s important to balance your needs for retirement with your goal timeline. Whether you withdraw for a first home early in life or later on affects the size of your mortgage and how much you have left for retirement.
Get Independent, Unbiased Advice
It’s important to be clued in to how a KiwiSaver withdrawal and first home grant work before you get too far along in the purchase process. We make it easy by providing independent, unbiased advice so you know exactly what you’re getting into and don’t miss out on any opportunities.
We are passionate about empowering Kiwis to make better decisions for their future. We want to know about your goals and priorities, so you get personalized recommendations to ensure you’re in the right fund. We’re here to answer your questions along the way so you can save better.