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How much deposit do I need to buy a house?
So you're thinking of taking the exciting step into home ownership, but not sure how much of a deposit you actually need? Good question!
Firstly it's important to realise that the deposit is important, but it's not the only factor the banks will be considering when processing your loan application. Here's a bit more on what you'll need to have in the bank...
Mortgage approvals have two main deciding factors:
- Your deposit - how much you have saved in the bank, plus money from other sources (such as the HomeStart grant, your KiwiSaver, any money gifted from parents, etc).
- Serviceability - your likelihood of being able to keep up with your mortgage repayments for the long haul (so how much income you earn regularly), including factoring in any debts you are currently repaying, and making sure you can cope with not only the cost of the mortgage repayments but also that your income can cover things like rates, insurance, house maintenance and of course any rises in interest rates.
0%, 10% or 20% deposits?
Depending on your circumstances, we can find lenders with options for all of the above. The best case scenario is that you have a 20% deposit, because this will mean you have access to better pricing and interest rates. But if you have less than 20%, all is not lost. We have access to lenders who will consider your deposit, and while it might cost you a little bit more (in higher interest rates and/or fees), once you do hit 20% equity you can usually renegotiate.
How do I calculate how much deposit I need?
So, think about how much you'd like to spend on your house. For examples sake, let's say that's $300,000.
It's important to note that if you don't have exactly 10% or 20% it doesn't matter - the banks can review your loan application based on any percentage, say 14.7% deposit for example if that's what you've got to play with.
How much deposit do I have already?
To work out what percentage you already have saved, calculate:
So in this example if you had $15,000 saved, you'd calculate $15,000 / $300,000 x 100 = 5% deposit.
Your deposit can be made up of any of the following:
- cash you have saved up
- your KiwiSaver savings (if you meet the criteria such as having made contributions for a minimum of three years, etc, you can take out most, but not all, of your savings - there are also options if you have owned a home before under the Second Chance application - read more on KiwiSaver eligibility in this article)
- the Housing New Zealand HomeStart Grant, which has similar criteria to the KiwiSaver First Home Withdrawal mentioned above
- any cash gifts or equity being used from your parents' home for instance (here's an article on how parents can help kids into a home)
What should I focus on first?
- Finding a decent Adviser (guess where you can find one of those?!).
- Gathering a good deposit.
- Getting your loan application approved, based on what the banks think you can afford (we can help explain your income to the banks on your behalf as much as possible).
- Getting a good interest rate and favourable mortgage terms.
Still have short-term debts holding back your savings?
It's easy to feel like your little debts are stopping you from achieving your goal of home ownership. If you'd like to talk about debt consolidation and savings plans to get you on the path to your deposit, we are more than happy to help with that too.
Talk to us today about getting your deposit together.
As part of our service I can help you to understand your eligibility for everything above, like the KiwiSaver First Home Withdrawal and HomeStart Grant, and preparing your deposit.
And because we are remunerated (paid) by the banks, our standard Mortgage Advice Service comes at no cost to you.
Having a professional on your side when it comes to negotiating and meeting with banks, securing loan approvals and handling the paperwork, can deliver significant advantages. As well as saving you time, I’ll handle your documentation swiftly, negotiate for you and can guide you through the process.
I look forward to hearing from you.
Feel like your deposit is a long way off?
Don't worry - with a bit of planning the day can arrive sooner than you may think. With our awesome Financial Planning service we can help you prepare from day one to achieve home ownership - learn more about our Starter Financial Plan here to help you achieve your goals faster!
You might also be interested in: Saving for a home? Why you need to consider your KiwiSaver set-up.