3 must-knows for New Zealand first home buyers
Are you itching to buy your first home? Median house price growth around the country has slowed over the last year, with Auckland’s prices going up by just 2.7 per cent, and Christchurch’s dropping by 0.5 per cent.
That’s why this could be the perfect time to get on the ladder – before the bottom rung gets even higher.
Hold onto your deposit for now. You shouldn’t even consider buying a house before you’ve done your homework and understand these three home buyer must-knows.
This could be the perfect time to get on the ladder – before the bottom rung gets even higher.
Home buying terminology
Unfortunately, when buying your home you’re going to run into a lot of jargon. If you don’t know what everyone’s talking about it can get overwhelming and hold you back from making the best possible decision.
Below are a few basic must-knows to get you started on the right foot:
Loan to value ratio (LVR): the amount of your loan compared to the value of your property, expressed as a percentage.
Conditional agreement: when you make an offer to buy a home, you must present and sign a sale and purchase agreement. If this agreement is dependent on the results of certain buyer checks or due diligence, then it is known as a conditional agreement.
Fixed and variable interest rates: with fixed interest rates, you pay the same amount of interest on your home loan for an agreed upon period – usually one to five years. Variable interest rates on the other hand go up and down to mirror the market.
Land information memorandum (LIM): Information on all information about or relevant to a property that your local council holds. This should include records of any work done requiring a code of compliance and information on any potential risks to the land such as flooding or erosion.
Prepare for all the costs of buying a home, not just the obvious ones.
Extra home-buying costs
The phrase ‘buying a home costs so much more than the sale price’ is a cliché because it’s undeniably true. Unfortunately so many first home buyers don’t keep this in mind when buying and end up struggling to make end meets.
To make life easier, prepare for all the costs of buying a home – not just the obvious ones. These include:
Lenders mortgage insurance (LMI): this is a one off fee the lender charges the borrower to protect themselves in the event that the borrower defaults on the loan. If your LVR is below 80 per cent, or you’re self-employed, you may be charged LMI.
Moving costs: if you’re hiring a removalist, this could cost thousands of dollars. If you’re doing it yourself, you could spend far less.
Furniture: you may have more space to fill in a new home compared to your flat and buying couches, beds, kitchen appliances, dining tables and other home furniture isn’t cheap.
Conveyancing: a specialist property lawyer or conveyancer can be very helpful when buying your first property. They’ll handle a number of essential tasks like reviewing your sale and purchase agreement, adding conditions to the agreement, registering the property transfer and much more. The cost of this service varies from $500 to $3,000 or more according to which conveyancer you use and the complexity of the purchase.
Insurance: many financial institutions won’t approve your mortgage unless you’ve purchased house insurance beforehand. The cost of this will vary depending on the cost of rebuilding your home, the risk associated with it and the insurer you choose.
What can you afford?
Buying a home is an expensive undertaking, and you should be completely sure you can afford it before you start the process. To work out what you can afford, have a look at homes you’d be interested in buying and get an idea of their price – then divide that number by five. You should aim to have that amount plus $5,000 to $10,000 for extra costs if you’re serious about buying.
If you don’t have quite enough and you meet certain conditions, you may be able to get a Welcome Home Loan underwritten by Housing New Zealand. These allow you to purchase property with just a 10 per cent deposit. Alternatively you may be eligible to receive a lump sum of between $1,000 and $10,000 from the government to go towards your purchase or build.
To be eligible for the Homestart Grant you must meet a number of conditions, including:
- Contributing the minimum amount to KiwiSaver for at least three years
- Have a household income before tax of less than $130,000
- Be planning to live in the house for at least six months from the settlement or completion date
- The house’s value must be under a certain amount depending on the type of property you buy and its location.
For more help taking steps towards your first home, get in touch with a local real estate agent that you can trust. If you get the right help and do your homework buying your first home is a very real possibility.