Advice matters
Getting your finances ready for your first home

With house prices dropping across the country and more listings coming up, there may be opportunities ahead for buyers. Here are some steps you can take to get yourself mortgage-ready, according to our SHARE advisers.

Boost your deposit

It may sound obvious, but putting together a sizeable deposit is really important. And not just because, in most cases, lenders require a deposit of at least 20% the house price. The bigger your home deposit is, the smaller your mortgage will be on the property you choose – which means less debt, lower repayments, and potentially lower interest costs overall.

If you’ve been saving for a while, now that prices are trending down, you may find that your deposit can get you into your first-home sooner. You may even be able to put forward more than 20% on a purchase or buy a bigger house.

Whatever your circumstances, when saving your first-home deposit, make sure you:
(a) know your property target (the total amount you’re comfortable to spend on a house);
(b) consider short-term affordability (the repayment amounts) and long-term affordability (overall interest costs);
(c) make the most of all help available (including KiwiSaver First Home Withdrawal and the First Home Grant, if you’re eligible).

If you have questions about any of this, please don’t hesitate to contact us. Our SHARE advisers are here to help you navigate your path to homeownership from start to finish.

Think about your income

Your income is another component that your lender will look at, when assessing your mortgage application. The steadier, the better. This allows them to confirm that you’re able to make your home loan repayments, even if mortgage rates go up.

Income can include your salary as well as business earnings, rental income and more. For example, if you’re an employee, you’ll usually need at least three months of pay slips and bank statements as evidence of salary/wages. And if you receive a business income, that must usually be demonstrated with at least two years of financial statements prepared by an accountant.

Not quite sure if what you have is enough? Once again, our SHARE advisers are here to help you research the market. For example, if you’re self-employed but have been operating for less than one year, there may still be some options available.

Get your expenses in order

Another important piece of the mortgage application ‘puzzle’ is your spending. If you have high living expenses or debt repayments, your lender will consider that you have less disposable income for mortgage repayments – which is likely to reduce your borrowing power.

When you submit your mortgage application, the lender will look at all the regular expenses you have on a day-to-day basis (generally not one-off costs or unexpected expenses), and use this data in their calculations to ascertain that you can comfortably afford future repayments.

So, it’s a good idea to track your spending ahead of your application. The more you know, the more accurate your application will be. And since your lender will also assess your savings levels, tracking your spending can give you an opportunity to identify potential cost cuts.

Check your credit score

Do you know what your credit score is? If you don’t, now may be a good time to check it, as it could affect your borrowing power, or even your ability to get a mortgage altogether.

A credit score is a numerical representation of your reliability or creditworthiness as a borrower, and it depends on things like your payment history, recent credit applications and more.

If you’d like to check your credit score, you can request a free credit report to one of the three credit reporting agencies in New Zealand – Centrix, Equifax, and Illion – each with their own score range.

Once you know your score, you can always improve it. Making payments on time, paying your credit card in full, limit credit applications, and even cancelling unused credit cards – these are all actions that can boost your credit score. And it’s a good idea to put some time into it, as proof of a good credit history can help you get approved for attractive mortgage rates and terms.

Factor in all costs

Lastly, make sure you don’t just focus on the purchase price. As a first-home buyer and future homeowner, there are also other costs to plan for.

During the house hunt, you’ll need to budget for a pre-purchase building property inspection: while it’s not mandatory, it’s a good idea if you want to ensure there aren’t any hidden issues with the property. Plus, you will need to pay a legal fee to your lawyer or conveyancer, usually ranging between $1,500 and $3,000.

And, you may need to get property reports like the LIM report, for $300-400 (more if you need it urgently). Lastly, especially if you’re borrowing more than 80% of the value or it’s a private sale, the lender may require a property valuation as well.

As for ongoing costs, make sure you factor in council rates, house insurance, maintenance, and life insurance (not compulsory, but highly recommended).

We’re in your corner

Like to know if you’re mortgage-ready? Please don’t hesitate to contact us: you can click here to find a SHARE adviser near you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.