Our 11 Tips for Those Wanting to Buy Now With a Small Deposit
The news of late around the Reserve Bank slightly relaxing lending restrictions, allowing banks more leeway for lending on owner occupied homes for those with less than 20% deposit, was greeted positively.
However while it is more difficult to get onto the property ladder with a smaller deposit, it’s not impossible and there are things you can do right now to make your first steps.
Forward Planning: It pays to seek advice the first moment you are considering entering the housing market. We call it ‘Mortgage Conditioning’ and if done in advance you will achieve your deposit goals by budgeting and planning over a period of time.
Kiwisaver and Home Start grant: There are some healthy looking Kiwisavers funds out there now which can be used toward your deposit if you are a first home buyer or owned property previously but no longer do and don’t have 20% of realizable assets to the value of the proposed property you are purchasing. The Home Start grant is a great option for those in Christchurch. The house prices caps are $500,000 for older/existing properties and $$550,000 for new builds. Home Start offers up to $5,000 for existing and $10,000 per person for new build.
Build: New builds are exempt from the 20% LVR restrictions which means all lenders have funding available at all times to build with as little as 10% deposit.
Purchase with friends: This can be a great option but there are certainly associated risks. Obtaining advice from a solicitor around relationship property agreements is crucial. Understand your exit options, what if one of you wants to sell? etc
Gifted deposit: Banks will accepts gifts for a portion of your deposit but must be generally be from direct blood relative.
‘Deed of Acknowledgement of Debt’: This allows a friend or other family member to loan you a deposit or portion of but with clear terms of no repayments until the property has sold then they are reimbursed.
Limited guarantee: Your parents can provide a limited guarantee against their property which essentially ring fences a 10% deposit or an agreed amount so should in the event of none payment the bank can only take the limited portion of funds rather than potentially the property.
Guarantor: If your income is not strong enough to purchase the house you desire we can include the income of another person within the application who may not intend on living at the same property. They will be shared ownership and have to be on the title of the property.
2nd Mortgage: Major lenders do not like 2nd mortgages but we work with other lenders that will consider another loan as part of your deposit. Rates are higher for these types of services but it’s an option especially if you have a strategy to pay down the 2nd loan quicker and then we can refinance to a major bank. There are even some lenders that partner up here and recommend another lender for the 2nd mortgage that they are familiar with.
Inheritance: Some clients family have provided their inheritance in advance to enable them to purchase a property.
Look at other lenders: ie, those who are exempt from LVR’s. The RBNZ rules only apply to registered banks. We work alongside a large selection of lenders and some of these simply choose not to be a bank so that they can be more creative with their product offerings. When considering these types of lenders it usually always means there is an option for funding with less than 20% deposit but the rates are higher, generally 6.50%+. This is a manageable option as long as we have a proposed exit or strategy around increasing the equity so we can then take you back to a major bank.