Likely the biggest financial decision you’ll ever make, purchasing a home is a major investment in the future of you and your family. It’s a dream most Kiwis have, and unless you have enough cash to buy a house outright, budgeting and saving to acquire a mortgage is a process most people go through. While it may sound simple in theory, making a commitment to saving can be a challenge so it’s important to start with realistic expectations and your eyes wide open. And even though no two houses are the same, here’s three steps that can help set anyone on the right track.
While the terms on mortgages can be upwards of 20 and 30 years, they shouldn’t last forever. But before you can be approved for one, your bank will need to be assured that you can afford to repay your loan. Figuring out what you can afford to repay first will not only tell you if purchasing a home is the right decision for you, but it will dictate how much you’ll need to save for a deposit, give you an idea of what kind of house you can afford and the area it’s in.
Westpac have a free online mortgage calculator that allows you to enter house prices, deposits, terms and interest rates to give you accurate repayments that you can compare with a number of properties.
Finding out how much you need to save as a down payment on your mortgage will depend on two things: the price of the home you’re looking at and how much you can afford to repay regularly. If you find that the minimum repayments are too high, you can extend the term of your mortgage, find a cheaper home, or save more for cash to pay upfront.
The default deposit is 20% of the price of the home, and if it’s your first home you’re allowed to put your KiwiSaver towards it, as well as your partner’s if you’re purchasing a home together. A KiwiSaver HomeStart grant could also help, with up to $5,000 per person (or $10,000 if you’re building) from the Government. And on top of that, if you qualify for a Welcome Home Loan then your deposit may only end up being 10% of the purchase price – check here to see if you’re eligible.
With an idea of what you can afford and how much you require for a deposit, before you can put these costs against your current lifestyle it’s worth factoring in the extra costs that come with purchasing a home. You’ll need to engage a lawyer for contracts and pay for building and LIM reports to ensure the property comes with no hidden surprises.