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Home Loans

Banks and lenders have very specific policies around lending to first home buyers and the pricing of their home loans can vary substantially.

If you are a first home buyer and find the right home loan, you should investigate both your options and government grants and entitlements you may be eligible for.  With interest rates falling and property becoming more affordable, first home buyers are in the best buying position they have ever been in.

First Home Buyer Assistance

KiwiSaver is a voluntary work-based savings scheme designed to utilise the existing PAYE (pay as you earn) tax system. KiwiSaver includes a first home deposit subsidy which, after three years of saving, provides a first home deposit subsidy of $1,000 per year, up to a maximum of $5,000.

Considerations in securing your first home loan

  • As a first home buyer, you will need to consider:
  • What assistance is available to you as a first home buyer
  • Suitable mortgage options for first time home buyers
  • The size of your deposit and where you will source this from
  • The fees and charges associated with purchasing a property
  • Undertaking thorough research on the property market
  • And of course finding a good mortgage broker, accountant, financial planner and solicitor
  • Current interest rate climate

Home Loans for First Home Buyers

There are a number types of mortgage options particularly suited to or advertised as suitable for first home buyers, including loans which allow a part of full guarantee by a third party. These loans are not the only types available for first home buyers, you will also be able to choose from a range of standard residential home loans.

There are also schemes out there called “Rent to Buy” and we get asked about them regularly.  All we can suggest is that you seek legal advice before signing anything.  We are not saying they are not worth it, but make sure you do your homework first on the risks and what your obligations and options are.

If you ever entered into a “Rent to Buy” agreement, you will need to make sure at some stage during the agreement term, that you are able to borrow the money from the bank at some stage to take over ownership and the mortgage.  You should at least find out whether a bank would approve you based on your current income and expenditure.

Just because you can pay the rent, this does not mean the bank will approve you financially so check with us first.

How much deposit do I need to purchase my first home?

Traditionally a 20% deposit was required in order to secure a home loan, leaving many first home buyers in today’s market under the impression they need to have saved a deposit before they can secure a home loan, but flexible bank lending policies mean there are now also a number of alternatives and supplements to having the cash in the bank already. Options for sourcing the deposit you need, include:

  • Traditional savings
  • Gifted money
  • Equity or guarantees from family members
  • Kiwisaver
  • Fees and charges for first home loans

There is a range of fees and charges relating to first home loans, including bank and lender charges, government and statutory charges and conveyancing fees, property valuations. For a complete overview of fees and charges associated with your home loan, contact us about this.

LOAN JARGON

This is the most common type of home loan. Most lenders will allow a maximum term of 30 years. Most of your repayments in the early stages of your loan pay off the interest while most of your repayments in later stages of your loan pay off the principal (the original amount borrowed). You can take a table loan with a fixed rate of interest or a floating rate.
You pay the interest-only part of your loan and none of the loan itself, so the payments are lower and can make it easier on your cash flow. It is quite common to take an interest-only loan for a year or two and then switch to a table loan after that.
Revolving credit loans work like a giant overdraft. You pay can go directly to your loan account and bills are paid out of the loan account when they’re due. By keeping your loan balance as low as possible as often as possible means, you pay less interest because lenders calculate interest daily. You can make lump sum repayments onto your loan and re-draw any money up to your pre-approved limit. This takes a highly disciplined borrower because there is the risk of always drawing back to your limit and never repaying the original loan amount.
This is similar to a Revolving Credit facility where you have the flexibility to redraw any extra repayments you have made on your loan, but the safety net that your maximum loan facility reduces over a period of time to make sure you repay all the loan at the end of the loan term. Any extra repayments you make on your loan will help reduce your interest charges and therefore save you a substantial amount of interest over the long term. Any extra repayments you make will be available for you to redraw at any time without penalty.
This is when you fix your interest rate for a period of time and can be from 6 months up to 5 years.  Some lenders may offer other options but these are the most common. The benefit is that your repayment is fixed and provides certainty for that period of time. If interest rates move down, your repayment does not as it is fixed for that period of time.  However, if interest rates go up, your repayment does not either. Keep in mind that if you are at a fixed rate and choose to repay your loan while you are still in your fixed rate period, there may be penalties charged to you by the lender.
This is where your loan moves with the current interest rate market.  So if interest rates go down, so does your repayment, and if interest rates go up, so does your repayment. Floating rate loans provide a little more flexibility and should you decide to repay your loan, there should be no penalties for doing so while you are on a floating rate loan.
When purchasing a property you would normally sign a Sale and Purchase Agreement.  In this agreement there are two important dates, one is the Finance Date and one is the Settlement Date.  If you require mortgage finance, then the Finance Date is the date you need to confirm to the seller that your finance is in place and your sale then becomes unconditional, and any deposits agreed to in your Sale and Purchase Agreement become payable.
Settlement Date is the date you legally take possession of the property you are purchasing. On this day, your funds to purchase the property are transferred from your Solicitors Trust Account to the sellers Solicitors Trust Account and the Title of the property is transferred into the purchasers' name.  Any mortgages will be also be registered on the property title.

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