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First Home
Buying your first home can be challenging
There's a lot to know when it comes to getting a home loan. On this page, we cover everything specific to first home buyers. For more general information visit our home loan page.
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Assessment Criteria
Purchasing your first property should be exciting but it is also likely to be the biggest purchase you will make. For most people, to buy a property you will need a loan from the bank. There can be a lot of terminology that you will run into during the application process so here is a simple breakdown of the assessment criteria. For Our Mortgage process page outlines the steps from start to finish.
Security;
This refers to the property you will be purchasing. The lender will obtain a mortgage over this property which is a legal term that means they are lending you money but will have an ownership or ‘legal interest’ in the property. This agreement will be void once the lending is cleared and you will own the property outright but while there is lending remaining they have a degree of control over the property. If you were unable to make payments then they are able to sell this property in order to recover their funds owed.
LVR;
The Loan to Value Ratio refers to limits on how much you are able to borrow against the securities value. Banks each have their own limits to LVR but they are guided by the reserve bank which sets limits on what the banks can do.
Your standard owner occupied LVR is at a maximum of 80% of the property value. So for a property price of $800,000, the maximum loan is $640,00. This means you will need to supply $160,000 deposit. Banks do have the ability to go above this 80% limit and offer high LVR/low deposit lending. This is discussed further under low deposit lending.
Servicing;
If you meet the deposit requirements then the next step is to meet servicing assessment. This is the banks way of judging whether you have the ability to make the repayments or not. Each bank has different servicing ‘calculators’ which is their tool the develop to try and assess your servicing. The calculation essentially looks at all your proposed outgoings and income to determine how much money you will have left over once all your living expenses and debts are repaid. This calculation is adjusted to allow for risk so the interest rate you are tested on will be higher than If you are within
Low Deposit
For an owner-occupied property the deposit which lenders generally require is 20% of the purchase price. However, under the First Home Loan initiative then it is possible to be approved with a deposit of 10% and as low as only 5%. In order to qualify under the First Home Loan, you will need to meet the following conditions
> You must be a first-time buyer and intend on living in the property you are looking to purchase
> Annual before tax income must be less than $95,000 if you are the sole borrower, and less than $150,000 combined if you are purchasing with others.
> Within the regional house price caps which can be found on the Kāinga Ora website.
A minimum of 5% deposit must come from personal savings but additional funds could be donated by a family member or come from a range of sources. A less than 20% deposit is more strict on other parts of the application including servicing requirements and additional documentation for the security. This includes the requirement of a registered valuation of the property which is often at the expense of the borrower.
Just because your bank may have declined your application for lending, this does not mean you don’t have other options. Discuss with a specialist to see how these problems can be overcome.
the their threshold then you will meet the servicing test. There are certain things that you can do to improve your servicing assessment and because banks use different tests, not every bank will offer you the same amount.
A broker knows ways to improve your servicing position and works with a panel of lenders to get you access to the best lending options and makes sure they are sustainable within your budget.
Specific Factors;
The other part the banks will look at is based around your personal circumstance and if there is any risk there. For example if you have credit history impairments or maybe you have only just started a new job. Once again bank policy can be different for any of these potential ‘risks’ that pop up. If there is a factor that means that banks won’t be able to advance the lending, then there are several non-bank options that can be of assistance.
Kiwisaver
If you’re buying your first home, you will likely be eligible to withdraw your Kiwisaver. In order to release your funds, you will need to meet the following conditions.
> You must have been contributing to Kiwisaver for at least 3 years
> You cannot have withdrawn any Kiwisaver funds before*
> You must be a first-time buyer and intend on living in the property you are looking to purchase
*It may be possible to draw on your Kiwisaver again if you are deemed to be in the same position as a first home buyer.
If you meet these conditions, then you are able to withdraw of your Kiwisaver balance except for the initial $1000 government Kickstarter which must stay in the account. This is known as a second chance withdrawal. Often, a Kiwisaver withdrawal letter will be a condition of your pre-approval so you can apply for this directly through your Kiwisaver provider or for further guidance you can visit the Kiwisaver website.
Kāinga Ora grants / Developer Contribution
Now that Kāinga Ora grants have been withdrawn as part of the budget reform, first home buyers have less funding available. To make up for this, some property developers are offering up to $20,000 to go towards deposit when purchasing their New Builds. Banks have varying approaches to this but some can accept it as a valid form of deposit.
Kāinga Ora First Home Loan
Buying your first home is a huge financial commitment and it can be challenging to get a suitable deposit. Kāinga Ora has been established to make it easier for first home buyers to purchase a property. Under the First Home Loan, you only need a 5% deposit rather than the 20% required by most lenders. As part of this initiative, a first home grant distributed by Kāinga Ora can be paid to you to increase your deposit.
The money received from Kāinga Ora is not required to be paid back but the amount you receive is based on your contribution to Kiwisaver. In order to be eligible for the First Home Grant, you will need to meet the following conditions.
> Income for a single borrower must be under $95,000
> Income for a couple or group of borrowers that are purchasing the property together must be under $150,000 combined
> Must have been contributing to Kiwisaver for at least 3 years
Not all lenders work with Kāinga Ora scheme's for low deposit lending and each lender will have their own credit criteria to meet as well. There can be a lot to know and a broker can help you navigate through the process to get you the best option and make the process easy. To see if you are eligible for the First Home Home Loan, get in touch with one of our specialists.