Saving for your initial deposit and how much you need
Home deposit - how much do I need to save?
When you’re saving for a home deposit, often the first question that comes to mind is how much money you will need. So how much will you need?
Most lenders in New Zealand 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). A mortgage adviser can provide you with more information about what LMI is and when 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.
Although it is the bank’s current preference, it is not always necessary to have 20% of the purchase price. There are some exceptions such as the ‘Welcome Home Loan Scheme’ for first home buyers, where only a 10% deposit is required or the option of a guarantor loan which may allow you to borrow 100% of the amount.
The more you save, the better
It may seem like stating the obvious, but the more money you have saved towards your deposit, the less you’ll need to borrow. Once you know what your savings goal is, you’ll need a plan.
Take the time to work out how much you need to save and what you’ll be cutting back on in order to reach your goal. Many of us find it challenging to save as it usually means having to give up some of the things we like, so it’s important to be realistic when creating a savings goal.
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 (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, a mortgage adviser can be instrumental in matching you with the right lender for your situation and help maximise your chances of approval.
Sometimes, there could be thousands of dollars between what each lender will approve you for and this can be 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 of your financial position. Whilst this would only be an indicative figure, your mortgage adviser will be able to provide you with a more accurate borrowing amount.
Are there any other costs?
Along with the deposit, there are other fees and charges associated with the purchase of your property. For example, if your loan is more than 80% of the purchase value, you will likely have to pay higher fees or interest margins. Then 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, later on.
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 home owner.
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.
Can't wait? Speak to an expert mortgage adviser today.