How to get a bigger home deposit
When it comes to your home deposit, in most cases bigger is better
While it’s always been a challenge to get together the deposit for a home, it’s certainly not got any easier for first-home buyers over recent years. Having a roof over your head to call your own is the cornerstone of most people’s financial plan, so to help out, here are the top five ways you can get a bigger home deposit:
1. Increase your savings
Increasing your savings is a no-brainer. Some tips to get you on your way include:
- Build up your savings gradually. Set up a small weekly automatic transfer into a savings account, such as $50. After that, on the first day of every month set a reminder in your calendar to increase the amount by $10. You won’t miss the extra $10 each month, but over time it will make a huge difference. By the end of year one, you’ll be saving $170 a week, or $8,840 a year. After five years, you’ll be saving $650 a week – an impressive $33,800 a year! If you reach the point when you can’t keep up the $10 increase, reduce it, but always raise your savings by at least a dollar per month.
- Plan for mortgage repayments. A different approach to above is to save the difference between your current rent and your proposed mortgage, then transfer the surplus income into a savings account. This can help you be better prepared when it comes to apply for a home loan, as well as showing you can afford the proposed mortgage. As a bonus, it helps build your deposit while you get used to how the proposed mortgage payments will feel.
- Optimise your expenses. A careful look at your outgoings can soon reveal areas that can be trimmed. For example, many of us are paying for things like subscriptions that we never use, and may have even forgotten we’re paying for. Check your bank and credit card statements carefully for such payments then cancel them – not only can you dedicate that regular sum to savings, but the improved cashflow it provides will help you obtain, then repay a mortgage when the time comes.
- Windfalls. Put any work bonuses or other windfalls straight into your savings for a home.
2. Increase your income!
Increasing your take home pay can be a challenge for many people, but it’s undeniable that increasing your income and saving the extra earnings, is the absolute best way to both increase your home deposit and better-yet increase your ability to repay a mortgage.
A Google search will give you no shortage of options to increase what you earn, with possible solutions including:
- Ask for a raise or ask what you’d need to achieve to obtain a raise or promotion. You might be surprised by the response.
- If you’re still some years away from purchasing a home, then it may be worth an investment in your own skills. This investment could be in a course or certificate so you can get promoted or shift to a higher paying role.
- In addition to your current source(s) of income, such as a full-time job, take part in the “gig economy”. For example, driving for Uber or performing freelance work.
- Sell stuff online. Whatever you’re interested in, the chances are you can sell what you like online. This could also be an option if you’ve got a bunch of spare stuff in a bedroom or garage, as online auctions are a great way to save on moving costs when you do find a home, as well as generating some extra cash to bolster your deposit.
- Take on an additional job. Almost none of us are at peak capacity, and while having a second job can be a big ask, as a short-term solution it may be just enough to provide the additional sum necessary to get you into the home you want.
Remember, the key is to increase your income then dedicate the additional regular surplus to savings.
3. Consider assistance from family
While it may be difficult to ask for family assistance, it may be well worth your while. This is often called the “bank of mum and dad”!
Our mortgage brokers (advisers) are increasingly seeing a lot of parents helping children enter the housing market, this can be by providing additional funds to contribute to the deposit, or by guarantors helping them secure lending from a bank. Sometimes, parents are simply providing an ‘inheritance in advance’ by gifting funds to children now instead of (sometime in the future) when the parents pass away. Providing it earlier in the children’s lives is likely to have a lot greater impact than the children receiving an inheritance later in life, as it is often far more valuable to the children when they’re trying to get on the property ladder.
Some people move back in with their parents to save for a home and dedicate what they would have been paying in rent to the home deposit.
The most obvious way to start saving for a first-house deposit is KiwiSaver.
If you know that buying a home is ahead of you, increasing your KiwiSaver contributions to eight or ten per cent is an option. Doing this from early-on in your career means you’ll quickly get used to saving that amount. However, KiwiSaver has several drawbacks, including that:
- Strict withdrawal criteria apply. This means that if your situation changes you probably won’t be able to access the funds as you’d planned.
- KiwiSaver is an investment, which means that over ‘short’ timeframes such as three years, we expect the balance to fluctuate – i.e. you could lose part of your contributions if you withdraw them during a time of a market downturn.
Check your fund choice
If you’re planning on using a KiwiSaver first home withdrawal to help buy a home, then ensure you’re in a suitable fund choice for your time frame and risk tolerance. If you want to buy in the next few years, you’ll probably want a fund that doesn’t invest mainly in growth assets – or in other words, you’ll probably want to choose a fund that’s invested conservatively. This will help limit the damage that an investment market downturn could do to your KiwiSaver balance, and thus the home you can afford.
If your first house is five years or more away, you can afford to take a bit more risk and may be rewarded for that risk with better returns. It’d be the pleasure of one of advisers to talk this through with you.
If you want to save money beyond what you put in KiwiSaver, you might choose to do it in another savings or investment vehicle to avoid those withdrawal restrictions. One option may be a simple managed fund.
5. Check all mortgage options
While this won’t help increase the size of your deposit, it will help you make the best use of it.
When it comes time to seek funding for a mortgage, there are several tips and tricks that our mortgage brokers (advisers) are familiar with to ensure you get the best deal possible. This could include:
- Seeking out more lending options than just your own bank. Non-bank lenders aren't restricted to the same rules as banks and can offer buyers a loan to increase their deposit with a standard bank, or a home loan for those with less than 20 per cent deposit. Non-bank lenders are limited to how much money they have available for lending, so this option is not for everyone.
- Repaying debts such as, credit cards and reducing the limits on them will reduce how much you can borrow for a home. For example, a credit limit of $10,000 could reduce the size of the loan you could obtain by up to $50,000.
- Examining different ways to structure the mortgage so you can repay it as fast as possible.
- In KiwiSaver, if you meet conditions such as income and house price grants, which vary around the country, you can access a HomeStart grant of up to $5000 per buyer (up to $10,000) for an existing house or $10,000 ($20,000 for a couple) if you're buying a new property.
The bottom line
Here are the top five ways to get a bigger home deposit:
- Increase your savings
- Increase your income, saving the additional surplus
- Consider assistance from family
- Invest more into KiwiSaver?
- Check all mortgage options
If you’d like to learn more about this topic, take a look at some of the following resources: