First Home Buyers Guide
Making the Mortgage process easy to understand
Shopping around for the best mortgage rate is essential for keeping the long-term cost of your mortgage down. With mortgage rates changing all the time and each bank having slightly different rates for 6-month, 1-year, 2-year, 3-year terms… it’s hard to know what’s best for you. When you go direct to the bank you’ll be offered their retail rates but be aware that each bank only has their own options to offer you. If you want someone to help you shop around the lowest rates on and help you negotiate a better deal, using a mortgage adviser is a safe bet. Mortgage advisers get paid commissions by banks because we help get your application ready for the bank’s approval. This is why we don’t charge you any fees. Our goal is to arm you with as much knowledge as you’d like and provide insights on the mortgage application process so you can focus on finding the right property. You’ll have 100 decisions to make; what neighbourhoods, how many bedrooms, whether to sacrifice a bathroom for a garage etc… you don’t want to spend hours dealing with the bank when you can do everything online. You’ll have to make some decisions based on how long you think you’ll live in the home (if you’re going to at all) and if knowing what your mortgage payments will be each month long-term is important.
Choosing the right loan terms
If you’re right at the limit of being able to afford to buy a property and need the certainty of a long-term fixed rate it might be best to settle on a 3 or 5 year fixed term… it’s hard to say what’s best as it depends on your circumstances. What’s the best mortgage? It depends… It’s cliche but true. Setting up a mortgage on a low rate (hopefully the lowest) will also incur some fees so it’s best to work with an adviser who can suggest what fees might be waived (this is part of the negotiation).
Going direct to the bank
In New Zealand most people naturally go to the bank they’ve been with since they to sort their mortgage. It makes sense, you’ve had your savings with them since you were little and just trust that you’ll be offered a good deal… the reality is you’re just another client, a number, and banks can only offer you the rates decided by management level. There’s very little loyalty with new lending and you should at least compare the rates available at other banks before signing up with the bank you talk to first. Mortgage rates are sometimes like the prices in a car yard… the advertised price is not always the price you pay. When a bank is looking at how much they’d be willing to lend you things they’ll consider include your income, how many dependants you have, how much other debt and assets you have (credit cards, cars, boats etc) and generally want to know your spending habits. The 20% deposit often referred to is not the only requirement. A bank will want to know you can pay back the mortgage each and every month. Most people who have the 20% (or close to it) will be able to afford the mortgage payments but the difference in a 15, 25, and 30 year mortgage is significant over the life of the mortgage ($100,000s of dollars) so it’s worth checking now to see if you can afford a shorter term or if it’s best to wait a little bit longer and save more money.
What is the pre-approval process?
Before you go through the process of submitting a formal application you can get ‘pre-approval’ for a mortgage by a bank or lender. Some of your basic details will be required. Getting pre-approved shows everyone, the real estate agent, the vendor, your parents, yourselves that you’re serious about buying and the bank has agreed to lend you a certain amount of money. Read more about pre-approvals. There are a couple of important things to note. Most banks have a home loan pre-approval certificate that is valid for 60–90 days from the date of issue. These usually are only issued when your deposit is greater than 20% of the new property purchase price. Have a look at our mortgage application checklist to see what you need to provide when applying for new lending.
How much can I borrow?
Having a combined income matters a lot. Having 2 incomes helps a lot and your borrowing power actually goes up more proportionately the more you earn. Use our calculator to see how much you can borrow.
What are the big no no’s when it comes to applying for a mortgage?
Your borrowing power is greatly influenced by your recent income and losing or changing your job will impact how much you can borrow if at all… most of the all the bank wants to know how you’ll pay the mortgage off. Credit cards are handy but it’s important to keep them under control and limit your spending around the time you’re trying to save for a home purchase and get a mortgage pre-approval. So many wannabe home buyers will book holidays, buy cars, make expensive purchases in the months leading up to buying a house… this can be a big mistake. The house you’re trying to buy is the most important purchase you’ll probably ever make so set yourselves up for success by having as many advantages as possible.
Can I get a gift from my parents?
Any cash gifts from family members need to say in writing that the money is a ‘gift with no interest owing or requirement to be repaid’. Your parents can give you cash if they have savings or borrow money using their mortgage to help you. This may require them to refinance their mortgage (which is very common for property investors). The trick for your parents is to refinance their current mortgage onto a lower interest rate at a higher valuation while at the same time getting a mortgage top-up that they can give to you. Read more about how your parents can help you to buy your first home.
What if I don’t have enough deposit?
Using Kiwisaver to buy your first home is a tactic used by many to assist with the initial deposit. Confirming as soon as possible the amount you’ll be able to withdraw from your Kiwisaver is vital. This will affect the amount you’re able to borrow and has the potential to determine the quality of home you purchase. Read more about using Kiwisaver to buy your first home.