Blog

How to Buy Your First Home

Property

|

9.6.21 |

Joseph Darby

Five Steps to Help You on Your Way to Home Ownership

Buying your first home can feel challenging and overwhelming, particularly amid a dynamic and ever-changing property market.

There is a lot to consider when you buy your first home.

You might be questioning: Is now the right time to make this significant investment? What falls within my financial reach? Am I prepared to shoulder the responsibilities of a substantial home loan? And how exactly does the intricate home-buying process unfold?

What makes it more challenging is the overwhelming array of information to work through. Everyone likes to give advice, such as your well-meaning aunty, friends, family, and Sharon at the front desk.

Despite this, with meticulous planning and savvy financial strategies, the dream of home ownership may be well within your grasp, perhaps even more achievable than you initially imagined.

“Am I Ready for My First Home”?

Being ready isn’t about knowing where to start or having all the answers. Being ready is all about attitude. It’s okay to be nervous, have loads of questions or be a little unsure of things, but if you’re committed to really wanting your first home, we’ll help you achieve that dream. We’ve helped people achieve things they never thought possible, and it was all because they had a real desire to make it happen.

So, are you ready?

Your Roadmap to Buying a Home in New Zealand

The journey to home ownership involves several crucial steps, each demanding careful consideration and financial preparedness. Let's break down some key aspects to ensure you're on the right track.

1. Borrowing Power and Pre-approval for Your First Home

The initial stage of buying a home requires a comprehensive review of your finances to understand your statement of position, cash flow, and what you can afford.

With the introduction of the Responsible Lending Code in New Zealand, lenders now delve deeper into your financial situation. They ask more detailed questions about you and your financial situation before providing you with credit (personal loans, credit cards, and mortgages).

If you’re struggling to get pre-approval it might be time to have a deeper look at your finances. Breaking free from the paycheck-to-paycheck cycle is achievable with strategic financial management. Consider these key areas:

Financial Awareness: Understand your income, expenses, and debts.
Limit Unnecessary Expenditures: Identify and cut down on non-essential expenses.
Pay Down Your Debts: Prioritise clearing existing debts to strengthen your mortgage application.
Boost Your Income: Explore additional income streams through side gigs or career advancements.

Here are some tips to lower your expenses:

If you have the option, you could move in with your parents.
Walk or cycle to work instead of driving.
Cancel unnecessary subscriptions. Do you really need Netflix, Disney+, Sky, Amazon Prime Video, and Lightbox?
Cut back on takeaways and money spent socialising with friends. But don’t get too caught up in the “stop buying lattes” hype.

Before applying for a mortgage, ensure you understand your stability of employment, affordability of repayments, financial discipline, and maintain a clean credit history.

To help keep more funds in your back pocket, check out these 20 money-saving tips.

Secure a Deposit

Typically, a 20% deposit is required for your first home. However, exemptions exist for various scenarios, such as buying a new property, qualifying for the First Home Loan, or accessing low deposit home loans. Explore options like leveraging your savings, investments, utilising your KiwiSaver Scheme savings, and tapping into the First Home Grant.

Get Help from Family

Family assistance might play a crucial role in your home ownership journey. Options include financial gifts, guarantees, and loans from family members. It's essential to engage with solicitors independently to ensure clarity and legal compliance.

Get Your Home Loan Application Conditionally Approved

Gain confidence in your house hunting by securing a conditionally approved home loan. Pre-approval provides insights into your buying power and price range. A conditional approval, usually valid for two to three months, can be extended in most cases, provided there are no significant changes in your financial position or the lending criteria. So, if you are looking to buy a house in the short term, getting a conditional approval is recommended.

2. Build Your Team of Experts (The A-team)

Buying a property is one of the biggest financial decisions you’re ever going to make. Therefore, it’s smart to surround yourself with the right team of experts to help you along the way.

So, who should be in your team?

A mortgage adviser.
A solicitor.
A valuer.
A buyer’s agent.
A building inspector and other relevant professionals.

The Mortgage Adviser (Mortgage Broker)

The New Zealand lending and mortgage market is a dynamic environment. The rules change regularly, and so do prices in the form of mortgage interest rates. A good mortgage broker will be by your side throughout the entire purchasing process, including with help to navigate the ever-evolving regulatory and banking environment.

The mortgage broker can also assess different lenders (banks) and see where you could be best placed to obtain a mortgage. This will save you time, stress, and not cost you a cent.

Mortgage brokers, including the lending team here at Become Wealth, will ask you to complete a standard application to help find the best lender for you. Their primary purpose is to match the borrower’s unique requirements to a specific lender and products and assist you through the process. In addition, they are often able to negotiate a more competitive offer (interest rates and possibly cashback) for you – the borrower.

To have a complimentary initial chat with a mortgage broker, get in touch.

The Solicitor

Here are examples of how your lawyer (solicitor) or conveyancer can help:

Sale and Purchase Agreement

They should review the agreement before it is signed. They will want to make sure it contains standard terms, that there isn't anything unusual, explain key risks, and ensure the deal is documented correctly.

Conditions

Most sale and purchase agreements include conditions around a building report, LIM, and sometimes other matters. A lawyer or conveyancer can help with these conditions.

KiwiSaver

A lawyer or conveyancer can help you with both withdrawing KiwiSaver funds and Homestart Grants.

Record of Title

They can also do a title search and advise you on any information which affects you as the buyer, including easements, covenants, consent notices and other matters.

LIM Report and Council Files

If there is a LIM condition (and even sometimes when there is not) the lawyer or conveyancer should help you order a LIM, and help you review building permits, code of compliance, utilities, supply, and other issues.

Transfer and Mortgage Documents

Most property deals include mortgage and loan documents. There are also documents to sign to become owner of the property. Your lawyer or conveyancer should talk you through these in language you can understand.

Settlement Day

Settlement day is key. Your solicitor will ensure everything is processed correctly and you only get your hands on the keys to the property when everything is finalised, including the transfer of funds.

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.

You could consider engaging a buyer’s agent to handle 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. While this approach can save you considerable time and effort, due to the way the real estate industry works, using a buyers’ agent does come with drawbacks. As a result, many people suggest you shouldn’t use a buyers’ agent.

Valuer

This may now be a moot point as most banks now require a professional valuation before they’ll confirm borrowing for the purchase. In other words, they won’t grant you a mortgage without the valuation.

Even if this wasn’t the case, the valuation cost of $600 - $1,000 is a reasonably small sum for the peace of mind of knowing you’re not overpaying for a property which may cost a million dollars, or more!

Others

Depending on the home you’d like to purchase, other professionals may need to be involved. This might include specialists such as building or engineering inspectors.

Some of these reports might seem costly at first, but in the context of a million-dollar transaction, the cost of getting things wrong is far more expensive! Unfortunately, New Zealand has a mixed reputation for housing quality. The potential issues go beyond leaky buildings - there is meth contamination and all sorts of other nasties. These professionals can help you to avoid buying a problem home, among other possible pitfalls.

3. KiwiSaver and Other Assistance for the First Home Deposit

KiwiSaver is your secret weapon in the battle for home ownership. KiwiSaver is designed to help you save for your retirement, but it also includes a withdrawal option for first home buyers. If you are a KiwiSaver Scheme member, you may be eligible to draw down nearly all of your KiwiSaver Scheme investment to contribute to your deposit.

Get in touch with your KiwiSaver provider and Kāinga Ora - Homes and Communities about buying your first home. You must be in a Kiwisaver Scheme for a minimum of three years before you can withdraw funds for your first home, among other terms and conditions.
If you're purchasing an existing home or opting for a new build, you may be eligible for up to $10,000 towards your first home through the KiwiSaver HomeStart grant. You can find out more at the Kainga Ora website.

‘The Bank of Mum and Dad’

If you’re in the position to do so, it might also pay to ask the ‘bank of mum and dad’ for assistance. There is recognition that a first home purchase isn’t as straightforward as it was 20 or 30 years ago, when parents often first purchased a home of their own, which is why many parents might be willing to help. If you go down this route, be sure you take specialist advice to ensure expectations of all parties are crystal clear, and are legally sound.

Related articles:

4. Count the True Costs of Home Ownership

The cost of home buying doesn’t just involve the purchase price of the home. There will probably be property inspection fees, builders' report fees, removal fees, and lawyer fees that all rapidly add up.

In addition to these costs, you need to consider the annual rates and insurance – as all lenders take these 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? Whatever your answers, set aside a sum for unexpected DIY and maintenance costs.

Looking ahead, 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 – will you still be able to afford your repayments? When you apply for a mortgage, the banks will test your expected cashflow against what rates might rise to, though you’ll need to accept the possibility of this and be prepared to adjust your lifestyle to meet higher mortgage repayments!

5. The First Home Buying Process

With your finances and pre-approval in order, the exciting phase of house hunting begins. If you’re buying with someone else, make sure you agree on your goals. Before you start looking, you could spend some time learning about the different types of property, get well-versed with real estate lingo, and discover potential issues to watch out for.

You can check out listings online, visit open homes, and enlist the help of a salesperson to arrange private viewing for properties you are interested in.

Research properties you have shortlisted and, don’t forget to get advice from your A-Team when you’re unsure about anything.

Do Your Homework

Once you’ve narrowed down your search it’s essential to find out as much as you can about the property and the neighbourhood you are buying into before making an offer.

Make an Offer

You can buy a home by auction, negotiation, deadline, or tender in New Zealand.

When presenting an offer for a property in New Zealand, you have the option to make it either conditional or unconditional.

An unconditional offer implies that you are ready to purchase the property without the need for any specific conditions to be fulfilled beforehand. In essence, you are committed to buying the property as is.

On the other hand, a conditional offer indicates that certain conditions must be satisfied before you commit to the purchase. These conditions could include factors such as confirming finance, obtaining a satisfactory building inspector’s report, or obtaining a LIM report. Conditions always have a timeframe attached and must be completed by the specified date. Once these conditions are successfully met, the offer transitions into an unconditional sale.

Remember that making and signing an offer may lead to a legally binding contract if your offer is accepted. Buying a house is an exciting time, but it is important that your solicitor checks your Sale and Purchase Agreement before you sign it.

Pre-settlement Tasks and Settlement

The last stage of buying a house is about confirming your home loan arrangements, confirming your new home is insured, finalising the paperwork and other tasks required to get you across the line on settlement day.

There are five main pre-settlement tasks that you need to complete.

KiwiSaver and First Home Grant

Submit your KiwiSaver first home withdrawal and apply for your First Home grant. We recommend you do this at least 15 business days before payment is due. Your solicitor should assist you with this.

Confirm Loan Structure

Your mortgage adviser will be assisting you with this task. Our mortgage advisers can help you structure your mortgage to best suit your goals and needs. They can also give you a few tips on how to build your equity faster and repay your mortgage sooner. Once the loan structure has been established, the loan documents are prepared by the bank and sent to your solicitor, ready for you to sign.

Insurance

You will need to arrange full house insurance prior to your settlement day. Technically, insurance isn’t a legal necessity, but it is still common practice that you have the lender listed as an interested party on the policy and provide proof of insurance (certificate of currency) to your solicitor prior to settlement. That’s because if the property is uninsured the lender won’t want to lend money to you to buy it!

Final Inspection

Before settlement make sure you carry out a final inspection of the property, which can be arranged through the real estate salesperson. You may want to ensure any inclusions in the Sale and Purchase Agreement remain and there has been no damage to the property since the Sale and Purchase Agreement was signed by you and the vendor. Inform your solicitor of the outcome of the inspection.

Remaining Funds

Ensure you have transferred any remaining funds as per your solicitor’s instructions prior to settlement if required. On settlement day, most of the work is completed behind the scenes by your solicitor.

What’s Happening in the Market?

The property market has been volatile in recent years, with prices reaching unprecedented levels in 2021 driven by factors like low interest rates, quantitative easing (“money printing”), limited housing inventory, issues with construction supplies, and redirected travel savings due to lockdowns.

However, this surge was followed by increased interest rates, stricter lending regulations, and a subsequent decline in house prices.

Mortgage rates are now tipped to decrease, and house prices are expected to rise again, but the exact timing and extent of these changes remain uncertain.

In any event, it’s nearly always a good time to get on the property ladder. Buying a home is a great long-term wealth creation tool, and the sooner you’re on the property ladder, the sooner other financial choices will start to open up to you.

The Bottom Line: Buying a First Home Is Not a Pipedream

Buying a home may feel like you're trying to navigate through a complex maze.

But, armed with the right knowledge, a solid plan, and a dedicated team of experts, you can confidently get through the process of buying your first home in New Zealand.

This journey includes understanding your borrowing power, securing a deposit, involving your A-Team of professionals, unlocking your KiwiSaver Scheme, and finally, sealing the deal with a well-informed offer and pre-settlement preparations.

Remember, your journey won’t end with the keys to your new property; it's an ongoing process that requires diligence in managing expenses, staying financially prepared, and adapting to changes in the property landscape.

Here at Become Wealth, we help people like you buy property every day, so we totally understand what it’s like to go through the process. Buying your first property is the first major milestone of wealth creation, and we know what it feels like to be in your shoes – we’ve done it before! We’re on your side, in your corner, the muscle in the fight. We’re here to get you what you need to turn the key in the door of your first home. Simply reach out to book your free first home consultation.