First home buyer mortgage

Buying your first property is one of life’s most significant decisions. This page guides you through the basics of choosing a suitable first mortgage, working out how much you can borrow and accessing first home buyer grants and concessions.

How to find the right mortgage as a first home buyer

While some lenders offer mortgage products specifically for first home buyers, most do not. First home buyers, like other borrowers, are in the market for a mortgage that suits their needs and has a low-interest rate, so they don’t pay more than they need.

Here’s how to find the best loan for you:

• Start with the interest rate. No one wants to be stuck with a high-interest rate, especially first home buyers. A lower rate means lower repayments, making your mortgage more affordable. Interest rates are low right now, especially for new customers, so it’s a good time for new buyers to shop around for their first mortgage.
• Decide on fixed versus floating.Both fixed-rate and floating-rate mortgages are affordable at the moment. However, it’s not just about getting a low rate. Floating mortgages typically offer more features and flexibility. However, you know that the rate never moves up (or down) during the period of a fixed-rate mortgage.
• Requires a 10% deposit (or lower). Saving a deposit is often challenging for first-time buyers, especially if you need to save the traditional 20% of a property’s value to qualify for a mortgage. Mortgages targeting first home buyers often have a maximum insured loan-to-value ratio of 90 or 95%, meaning you can get the mortgage with just a 5-10% deposit. However, you need to pay lenders mortgage insurance (LMI) if you borrow above 80%. Having a bigger deposit lowers your monthly repayments, and it also makes it easier to receive loan approval, which impacts the type of mortgage you’re eligible for.
• Consider your repayment type.Most first home buyers choose a mortgage withprincipal and interest repayments. With these mortgages, you repay the principal and the interest together, and they often have lower interest rates. However, you could consideran interest-only mortgage. Your interest rate is higher, but your repayments are lower in the short term, which can help if you are struggling to make repayments, but it’s a significant risk because it costs you more in the long run. Make sure you understand how interest is calculated on your home loan before you make a decision.
• Think about the features that matter to you.First home buyer mortgages are often basic loans without extra features likean offset account, which is fine if you’re just concerned with getting alow deposit mortgage with a low-interest rate. However, if you have extra money to put into an offset account, you might want to consider a mortgage that comes with one. Be sure to ask your bank about any features that come with your mortgage, how they work, and how much they cost.

Am I eligible for any financial help as a first time home buyer?

Yes, there are a few grants and concessions Kiwi first home buyers can access including, the First Home Loan and the First Home Grant. You may also be eligible for the Kiwisaver First-Home Withdrawal.

First Home Loan

If you only have a 5% saved and are a first home buyer, you could be eligible for the First Home Loan through specific lenders. Under this scheme, qualified borrowers can borrow 95% of their property value with a 5% deposit.

First Home Grant

If you’ve been making regular KiwiSaver contributions for at least three years, you may be able to apply for a First Home Grant. For buying an existing home, you can get $1000 for every year you’ve paid into the scheme up to $5000 for five years. For new homes, you can get $2,000 for every year you’ve paid into the scheme up to $10,000 for five years.

Kiwisaver First-Home Withdrawal

You can withdraw your KiwiSaver funds to put towards the deposit if you’ve belonged to the scheme for at least three years, but you must leave at least $1,000 in your KiwiSaver account.

How much can I borrow?

The amount you borrow is an essential question for every first home buyer to consider. You can use a borrowing power calculator to get a clear idea of how much a bank may lend you.

You need to enter your income (and your partner’s income if making a joint application), plus the number of dependents and any debts you have. The calculator then estimates your expenses using a standard cost of living index. The result is only an estimate, but it gives you a better idea of how much you can borrow.

How can I save up a deposit?

Saving a deposit for your first home is challenging, especially if you’re renting. Plus, when house prices rise, the amount you need to save only grows. Finding a low deposit mortgage can make the task easier. However, there are other ways to build your deposit:

• • Parental gift or inheritance. Most lenders want to see genuine savings. In other words, the money you earn yourself. However, some may accept part of a deposit in a cash gift or inheritance from your parents. Other lenders only need 5% of your deposit to be genuine savings.
  • Sell assets. You can sell valuable assets and use the cash to boost your deposit. However, you may need to hold the money in your account for six months for it to qualify as genuine savings.
  • Find a guarantor. A parent can use their property as security to guarantee part of your deposit, which reduces the amount you have to save and might help you avoid LMI costs.

Lenders mortgage insurance (LMI)

Suppose your deposit is smaller than 20% of the property’s value (so, your LVR is 81% or higher). In that case, your lender charges you lenders mortgage insurance, which can cost you thousands on top of your other expenses (although you can often borrow it alongside your mortgage amount).

LMI costs vary depending on your loan amount and deposit size. For example, if your LVR is 85% (a 15% deposit), your LMI is less than if you have an LVR of 95%.

Here are some examples.

The LMI amounts above are examples only.

Can I get professional help with my loan?

You certainly can. Mortgage brokers are experts who have access to home loans from a panel of lenders. They can suggest suitable options for you and help you with the whole application process. Their services are usually free. So while most people are perfectly capable of securing a mortgage, a broker can be a helpful asset.

Find out more about mortgage brokers today