If you’re looking to buy your first home, depending on which part of New Zealand you plan to buy in, property prices may be too high to do it alone. At BNZ, we want to help more customers to purchase their first home, and one solution is to partner with friends or family. By pooling money together to get a bigger deposit and having more than one person making mortgage repayments, you could get into a home faster than going it alone.
As you’ll be buying a house with other people it’s important to get legal advice. You may decide to get an agreement which could outline things like who pays for what and how you will resolve disputes. Also, to ensure you can meet your share of the mortgage should you lose your job or become ill - getting life, trauma, or income-protection insurance is a good idea.
How much deposit will you need?
If you are buying an existing home, in most cases, your bank may require you to have a deposit of 20% of the property’s value. However, some banks may be willing to lend to you with a smaller deposit so it’s worthwhile speaking with them sooner rather than later.
As a first-home buyer, if you have contributed to KiwiSaver for at least three years, you may be eligible to withdraw some of your savings for a deposit. Also, you and each of your co-buyers may be eligible for a HomeStart grant of between $3,000 and $10,000. The amount you get depends on how long you have been with KiwiSaver and whether you’re buying an existing or new home. As you can imagine, if you and your co-buyers are all KiwiSaver contributors, the amount you will be able to contribute as a deposit could be considerable. As an aside, if you have owned a home in the past, you may still be eligible as long as you haven’t previously received a HomeStart grant and no longer own a house or land.
The cost of home ownership
Being able to pay a certain amount of rent doesn’t always mean that you can manage the same in mortgage payments. It’s important to remember that as a homeowner, there are additional costs that you don't have to worry about as a tenant. For example when owning a house, you must consider rates, home insurance, and maintenance. If you're buying into a new property development, there may also be body corporate fees to pay.
Get your finances in shape
Being able to scrape together a deposit for a house is great. However, the bank may want to take a look at the rest of your finances. It is important that you demonstrate to your bank that the rest of your finances are in order; so it’s a good idea to repay any debt and clear any bills that are outstanding, which may affect your credit rating.
Applying for a home loan
When applying for a home loan with friends or family, it’s important from a bank's perspective, that the debt is spread relatively evenly. In other words, the loan shouldn't be too reliant on one person.
There will be one home loan (not multiple) with each party's name on it. For you, it’s important that all ‘owners’ are named on the home loan documentation because your bank needs to assess everybody’s income to determine how much you can borrow. Once your home loan is approved, your bank may set up a joint account for mortgage payments.
Structuring your mortgage
You can structure your mortgage as floating, fixed, revolving, or a combination of all three. When it comes to mortgages there isn’t a one size fits all, so we recommend that you talk to your mortgage advisor about how they can structure your mortgage to best fit your lifestyle. To lessen the impact of any interest-rate movements, some people will spread their fixed mortgage across two or more terms so that it doesn’t all roll off at the same time.
Some banks, like BNZ, also offer an offset mortgage which can help lower the interest you pay by looking at the combined balances of your accounts and subtracting these from the total owing on your home loan, meaning you only pay interest on the remaining amount. You can even pool accounts with family members to reduce the interest amount even further.
How offsetting works
Check out the video below for more information.
If you’re ready to apply for a home loan all you have to do is get in touch with a mobile mortgage manager who can work you with you to understand your situation fully and design a mortgage that best suits your needs.