Mortgage tips for ‘first timers’
So, you want to buy a house?
Awesome! We’d love to help you do just that.
Buying a house and getting a mortgage is a major financial decision, so you need to ensure you can afford what you are buying, and also minimise the risk of having to outlay more money on the property in the future. That’s why when you talk to us about getting a mortgage, we go a step further than just finding out how much a bank will lend you.
We’ll also give you advice about how much you should borrow based on your circumstances and future goals. and have robust conversations about what’s important in your life, and create a mortgage strategy that you can easily follow – to make sure you stay on track.
Next, we’ll work out which bank and which mortgage structure is best for you, and work hard on getting you the best deal on interest rates and other mortgage features and offers.
Plus, if you’re eligible for a KiwiSaver First Home Grant we can help you with this too!
You will need to have some of your own savings (deposit) to put towards the cost of the house. The level of mortgage deposit will need to be at least 5% of the value of the house. That means that for every $100,000 in house value, you will need to have $5000 of your own money.
Mortgages & Your Income
You will also need to prove to the bank that you have the ability to pay the mortgage off. Ideally, you will have some form of income that is sufficient to pay off your debts and also live your life. Banks like to see mortgage repayments to be no more than one third of your income before tax.
Some mortgage lenders are less strict on the income side of things, and may look at a submission based on the value of the property compared to how much is being borrowed. If there is sufficient equity in the property, they may extend you the mortgage on the understanding that if you don’t pay, they will sell the house and recover their money that way.
Having a mortgage literally means that the lenders place a mortgage on the property – in other words, a charge is held on the property’s title. This means that nothing can change on the house title without the banks’ permission. This includes changing owners, or adjusting the title in any way that could affect the value.
Various lenders offer enticements from time to time to encourage new mortgage customers. These usually take the form of competitive fixed term interest rates, along with a monetary contribution to switching costs, by way of either cash, vouchers or maybe some new electronics for your home.
If you add up how much interest you are going to pay over the life of your mortgage, you may find that the interest is the same as the value of the house you are purchasing!
So be careful when looking at these initial offers, and make sure that the mortgage structure you go with is one that is going to give you the best deal over the life of the loan. This is an area where we can help further, so let’s have a discussion about it!
Don’t have 20% Deposit?
In October 2013, The Reserve Bank of New Zealand introduced a policy that had an impact on how much deposit you need to get into a home. They were trying to control the price inflation in the housing market.
The actual policy is that Banks and Lenders must limit their low equity lending to 10% of their overall new lending in Auckland, and 15% in other regions. This means that for every 100 new home loans that a bank approves, only 10 of these loans can be low deposit. (At this stage the low deposit restrictions are temporary, rather than permanent – they may change again.)
However this does not mean that a bank will turn down a low deposit refinance request. Refinancing is exempt from the new policy, as they are existing loans that are simply switching providers, thus not affecting house price inflation.
Banks may charge a Low Deposit Fee for these types of loans, or they may add a premium to your interest rate because you have a low equity loan. If you meet the Welcome Home Loan Criteria, and use an approved lender, then this Fee is waived.
Have you been declined for finance by one bank? That doesn’t necessarily mean that you can’t get finance at all, it might just mean that bank has already maxed out its limit for that period. You can go and approach any other lender who may have space for more low deposit loans, or you can try again in the next period.
You’ve got the loan – now it’s time to find a house…
Once you know the price range of what you can afford, you can start looking for something that fits your budget.
It’s important to research a house to make sure that you are not paying too much for the property and preferably find a bargain!
Remember that the real estate agent advertising the house for sale is working for their client to get the best price for the house they are selling, so it is best to talk to agents that are not involved in the transaction. I’d start by talking to a couple of real estate agents to get an idea of the price range that properties in the area are going for, and what they think the house will get.
You can take it a step further by employing the services of a registered valuer, to provide a valuation on the property. They provide a service where they inspect the house, then research the property in comparison to other houses that have sold recently in the area and provide you with a price estimate. You can use this as a guide for your offer. A Registered Valuation may cost between $350-700. Some banks may require you to get a Registered Valuation in order to provide finance.
Making an Offer
When you make an offer on a house, you can make your offer subject to conditions that will be met at a specific date in the future. Below are some examples of conditions you can make when buying a house…
This means that your offer is subject to you arranging finance to fund the transaction.
Obtain a report from a builder who will inspect the property and advise if there are any outstanding maintenance issues that is likely to cost money. Check with a builder about how much this will cost, but expect to pay around $500-$1000. There are also Building Inspection companies that specialise in pre-purchase checks.
This is important specifically if you intend to do something with the land you are thinking about buying. You need to be comfortable that the land can be used for your intended use.
To make sure the house doesn’t have any poisonous residues and that its going to be safe.
Land Information Memorandum (LIM)
This report is available from the local council and provides good general information about the land and surrounding area.
Subject to the Sale of Your Own Home.
This is where your lawyer has checked everything over (title, etc.) and is satisfied with the state of affairs.