How big a deposit do I really need?
Home deposit - how much do I need to save?
You’ve decided to buy a home. So, how much do you actually need to save up?
By law most lenders in New Zealand are only allowed to have 15% of their residential lending in low equity loans (under 20% deposit) so the standard rule is most require that you have a minimum deposit of 20% of the amount you wish to borrow. For example, if you’re buying a house worth $500,000, the deposit will need to be at least $100,000.
Having a deposit of 20% or more also means you avoid paying the cost of Lender’s Mortgage Insurance (LMI), which all other things being equal means a cheaper mortgage for you. LMI kicks in once your Loan to Value Ratio goes above 80% and it’s for the lender’s benefit, not yours. A mortgage adviser can provide you with more information about LMI and if you’ll need it.
What if I don’t have any deposit?
If you have little or no money saved for a deposit, the good news is, it’s still possible to buy your dream home.
Recently the Reserve Bank announced changes to their Loan to Value (LVR) lending restrictions on banks. These changes moved the cap in place for low deposit lending from 10% to 15% of a banks total loans. All this really means is the banks can lend more money to first home buyers with lower deposits (yay). Keep in mind, each bank has their own lending policy so it’s ultimately up to them, but your mortgage adviser can help steer you in the right direction.
Bonus, there are also some exceptions to the standard 20% rule such as, the ‘Welcome Home Loan Scheme’ for first home buyers, where only a 10% deposit is required and you have the option of a guarantor loan which may allow you to borrow 100% of the amount you need. Other LVR exemptions apply for new builds so it pays to get the right advice before resigning yourself to several more years of hard saving.
How much can I borrow?
Your income, credit history and employment history are just some of the many different factors that a lender will take into account when considering how much you can borrow (aka your borrowing capacity).
Because different lenders and banks, each have their own criteria when it comes to the amount they’re willing to lend you, it’s best to have a mortgage adviser on your side. A mortgage adviser can help match you with the right lender for your situation and help maximise your chances of approval.
Sometimes, there can be thousands of dollars difference between the amount each lender will loan you. This could be the the difference between buying your dream home and settling for another one.
If you’re unsure of how much you’ll be able to borrow using an online calculator before consulting with a mortgage adviser can help to give you an idea where you stand.
Are there any other costs?
Along with the deposit, there are other fees and charges you will need to pay..never fear, the fees don’t come from us. It’s our job to make sure you’re aware of any and ensure you don’t pay more than you need to.
For example, if your loan is more than 80% of the purchase value, you will likely have to pay higher fees or interest margins. Plus, there are solicitor fees and in some cases LMI or strata fees, depending on the amount you borrow and the type of property you buy.
Consulting with a mortgage adviser will help you understand, from the start, what additional fees you’ll need to pay to avoid any surprise costs.
How soon you save for a home deposit is ultimately up to you and how much discipline you put towards saving, but a mortgage adviser is there to steer you in the right direction and educate you on the different products available to you.
Their market knowledge and expertise can assist you in finding a solution to your situation sooner, no matter how simple or complex it may be to become a homeowner.
If you’d like to find out more, please register for one of our first home buyers seminars or download our first home buyers guide here.