Help from Mum & Dad
(you only need 10% deposit)
This simple trick is used because it maximises returns and the amount you can borrow.
So you want to buy your first home but don’t have enough saved? Interest rates are at historical lows, but property prices in Auckland keep rising, maybe you’ve almost given up? The good news is your parents can gift you some (or all) of the deposit. There are also other options like using your Kiwisaver and the Government’s ‘Welcome Home Loans’ scheme. The 20% deposit rules are not as strict as you might expect and banks have an allocation of lower deposit home loans allowed each month. The best strategy is to get as close to 20% as possible with your own deposit, Kiwisaver contribution, and gifts from family. It might be best to buy a house with your siblings or go in halves with your parents or close friends if you can’t get to 20% yourself.
Cash gifts vs. guarantors… Why is this less of a risk for your 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.
Here’s an example:
Let’s assume you want to buy a $600,000 property and need $120,000 (20% deposit). See the diagram for your parents’ home and mortgage.
If your parents have a $350,000 mortgage on their million dollar home, this means they have 65% equity and can borrow back down to 20% if required. In the example, we’ve shown the $350,000 mortgage then the new mortgage with $150,000 top-up. Your parents can gift you the required $120,000 and have $30,000 for renovations, holidays, buying a boat. It’s their choice…
These are all just example numbers and your situation is probably different. Some of you will be lucky enough to have parents who will be happy to give you the money required. The reason your parents have less risk gifting you the money rather than going guarantor is they don’t have to put their home on the line as security. You can get the head start you need without involving lawyers or risking both your property and your parent’s property.
Let’s have a look at your options with KiwiSaver
If you’ve been contributing to KiwiSaver for at least three years and looking to buy a house for under $550,000 (in Auckland) then using KiwiSaver might just be your ticket. You can borrow more using KiwiSaver on joint applications. “The maximum grant available for an individual is $5,000 for an existing home and $10,000 for a new home. For joint applications the maximum increases to $10,000 and $20,000 respectively.” Housing New Zealand. One thing you’ll notice is the extra borrowing available for new home builds. The Government is trying to encourage new houses to be built by making the lending rules more favourable to people who decide to buy brand new homes. If you buy from the plans in a new development, this means your deposit amount only needs to be 10% and you can get double the HomeStart grant contribution.
Using KiwiSaver to buy your first home is a tactic used by many recently to assist with the initial deposit. Confirming as soon as possible the amount you will be able to withdraw from your KiwiSaver is your advantage over other first home buyers. This will affect the amount you can borrow and has the potential to determine the quality of home you purchase.The process can take up to 3-4 weeks to get
The process can take up to 3-4 weeks to get mortgage pre-approval and arrange for KiwiSaver contributions to assist with the deposit. Getting things sorted early is the way to do it. Before you even start visiting open homes and falling in love with properties, especially if they’re out of your price range, get the magic number sorted (how much you can borrow and, therefore, the maximum dollar amount you can spend when buying a property). If you earn less than $80k (or $120k combined), you might qualify for the Government’s Welcome Home Loans scheme of 10% deposit.
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