How to buy your first home
Five steps to help you on your way to home ownership
Buying your first home can be tricky. Over recent years it’s been difficult to visit any New Zealand news site and not see an article about housing unaffordability. The increase in property values over recent years has pulled back a little (even before Covid-19 struck), but for many, purchasing your first home can still seem like a far-fetched pipedream. Despite this, home ownership is still achievable – and with some forethought and smart money management, buying your first home could be closer than you think.
Planning for your first home purchase involves fivekey factors:
1. Cashflow management
Relatively low regular 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 debts, 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 or cycling 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!
To help keep more funds in your back pocket, check out these 19 quick-fire ways to cut expenses.
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. Use KiwiSaver and other assistance
When you got your first job, hopefully you chose to enrol in a KiwiSaver Scheme. Even if it was contributing at the minimum rate of three percent 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 from your KiwiSaver investment to use towards your first home deposit. As well as using your KiwiSaver funds, you could be eligible for a KiwiSaver First Home Grant. This can provide $5,000 to 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 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 tap 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. One contingency that’s worth considering is if mortgage rates go up a percent or even more – will you still be able to afford your repayments?
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.
5. Build your team of experts (the A-team)
Buying a property is one of the biggest financial decisions you ‘re ever going to make. So it is smart to surround yourself with the right team of experts to help you along the way. So, who should be in your team?
The Mortgage Broker
A good mortgage broker will be by your side throughout the entire purchasing process. 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.
Mortgage brokers will ask you to complete a standard application just once to find the best lender for you. Their primary purpose is to match the borrower’s unique requirements to a specific lender and products. In addition, they are often able to negotiate a more competitive offer (interest rates and possibly cashback) for you – the borrower.
Before you sign anything, you'll need a solicitor to advise you on the legal aspects of the purchase process and transaction. A solicitor will act in your interests to make sure you understand and are not disadvantaged by the agreement for sale and purchase (the formal document which you sign agreeing to buy a property). They will conduct background checks on the property with council and government departments, looking at details such as zoning, land tax and transport proposals that might affect the property.
They’ll also complete the process of buying the property itself, including updating the official property records and the actual transfer of your funds and the mortgage to the seller.
The Financial Adviser
Financial advisers can help you plan and manage bigger financial decisions and their advice can be useful at turning points in your life. A financial adviser can help you set financial goals so you can feel confident that your plans are achievable. For example, if you have a number of goals that you like to achieve such as buying your first property, going on a holiday, managing your inheritance, etc. an adviser can help you put the right strategies in place. In addition, once you have achieved them, they can help you to maintain them.
The Buyers’ Agent
You should be talking to several different real estate agents to get a good sense of the housing market you intend to buy in.
At most, if you lack the time to hunt for a property, you could consider using a buyer’s agent to do some of the leg work for you. This means they’ll visit the properties for you and help shortlist the ones that might suit your requirements. This will cost you, but if you are particularly inexperienced with the market, it could save you a lot of time and effort.
First home buying - the bottom line
The five key steps to buying 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.
- Build your team of experts (the A-team). To assist you with the process and smooth the inevitable bumps that might come up.
For more detail on this topic, including how Milestone Direct may be able to assist, please see our quick video below, or keep scrolling past the video if you’d like to get in touch – it would be our pleasure to assist.