How to buy your first home
You could be a lot closer than you think to buying your first home. Here are four steps to help you on your way to home ownership
Buying your first home can be tricky. It’s difficult to visit any New Zealand news site and not see an article about property unaffordability. While the increase in property values over recent years has slowed a little, purchasing your first home can still seem like a far-fetched pipedream. Despite this, home ownership is still achievable – with some forward planning and smart money management, buying your first home could be closer than you think.
Planning for your first home purchase involves four key factors:
1. Cashflow management
Relatively low expenses but still living pay-to-pay? This is all too common a situation amongst New Zealanders – and without some big life changes, is a tough cycle to break. Managing your money doesn’t necessarily mean budgeting. It means knowing what your financial commitments are and where your money is going once it lands in your bank account. If you have existing debt, such as a credit card or car loan, directing any spare cash towards paying these off will go a long way in freeing up extra in the long-term – it’s easy to forget that these always cost you more than the amount that you borrowed! The lower you can get your outgoing expenses, the more you can funnel into savings. Some tips to get these as low as possible include living with parents (if you have the option), walking instead of driving, cancelling any unnecessary subscriptions (do you really need Sky, Netflix, AND Lightbox?), and cutting back a little on the morning coffees and Friday night drinks. To put it in perspective, a takeaway coffee a day (with an average cost of $5 per coffee, five days a week), adds up to $1300 per year – depending on where you want to buy, that’s a years’ worth of property rates! No matter where you cut back on your spending, managing your cashflow doesn’t mean being so frugal that you’re going without. It’s better to be realistic about your habits, and trim them back slowly in order to get the most long-term gain.
2. Using KiwiSaver and other assistance
Hopefully when you got your first job, you chose to enrol in a KiwiSaver scheme. Even if it was at the minimum rate of 3% of your pay, in most cases, your employer will have been matching that percentage. If not, it’s not too late to enrol. Think of a KiwiSaver investment as a bit like compulsory savings – but easier – because you never have the money in your bank account to redirect elsewhere. On top of what you (and your employer) put in, the Government will contribute 50c for every $1 you save, up to a maximum of $521.43 per year. When you’re ready to purchase, you can withdraw all but $1,000 of your KiwiSaver investment to use towards your first home deposit. As well as using your KiwiSaver investment, you could be eligible for a KiwiSaver First Home Grant. This can provide $5,000-$10,000 towards your deposit, depending on the home.
3. Know your costs
The costs of home buying doesn’t just involve the purchase price of the home. There can be property inspection fees, builders' report fees, and lawyer fees that all add up rapidly. In addition to these costs, you need to consider the annual rates and insurance – as almost all lenders take these costs into account when assessing your borrowing power. You can utilise regional council sites for rates assessments, which also contain basic property data such as land and dwelling size – two major factors when insurers quote for house insurance. Whenever you find a property you are interested in, be sure to run checks on both these costs and account for them in your expenses. Ongoing maintenance costs also need to be thought about – what happens if a faucet leaks? Or a door falls off its hinge? Will you need to pay someone to mow your lawns? Before you even start the buying process, be sure you have money set aside for contingencies and maintenance, and then plan on it being a semi-regular expense.
4. Get pre-approval
It’s an excellent idea to get pre-approval for your mortgage before you start house hunting. Not only does this save you the disappointment of falling in love with a house you can’t afford, it means you have a limit you absolutely have to stick to – and the more you come under that limit, the less maxed out your borrowing capacity will be. It can be time consuming to approach multiple lenders to get this completed, so finding a mortgage adviser (often called a mortgage broker) to do this for you will save you time, stress, and not cost you a cent. They can take all the information all the lenders need for you just once and apply for pre-approval with several lenders simultaneously. As each lender has different requirements, they can build each application for you instead of you having to compile the same documents (with a few differences) multiple times. Having a mortgage broker will also be a huge benefit when you’re ready to apply for the mortgage – they can negotiate lower rates than what will be offered to you directly from the lender.
First home buying - the bottom line
Four key steps to buy your first home include:
- Cashflow management. This will enable you to accumulate a sizeable deposit, and prepare you to start repaying a mortgage.
- Using KiwiSaver and other assistance. Maximising the benefits available will either reduce the lending you need, or may enable you to buy a home you otherwise couldn’t.
- Know your costs. This will ensure there are no surprises.
- Get pre-approval. To ensure you have realistic expectations, this should be done before you set foot in an open home.
For more detail on this topic, including how Milestone Direct may be able to assist, please see more about our assistance to first home buyers.