Getting your first mortgage can seem like a daunting and slightly scary prospect if you are a first time home owner. We caught up with Mortgage Adviser - Melanie Dingle to discuss some common scenarios that we often encounter to ask her advise for each situation.
Scenario 1: We are first home buyers with two small children. We are both working but are struggling to reach the 20% deposit required for our own home. What advice can you offer?
As new-builds are exempt from the Reserve banks LVR (Loan to Value Restrictions) these are a great option if you have less than a 20% deposit. The banks have no restrictions as to how much lending for new builds with less than a 20% deposit they do. This makes them very popular with first home buyers. You will get a slightly higher interest rate if you don’t have a 20% deposit so if you can get to 20% that is what I usually recommend. You can use a parent as a guarantor to help with equity/deposit and this is another great reason to improve your deposit and as well as the interest rate you would receive.
Scenario 2: Our son and daughter are both in their 20s. They both have good jobs and some savings, and we would like to help them get onto the property ladder. We are mortgage free and would like to use our equity to support them into their own home. What advice can you offer?
The first piece of advice would be to make sure your children are in Kiwisaver as this is a great way to build a deposit that can be used to help with your first home. You can withdraw your contributions plus your employer's contribution. The initial government $1000 kickstart can not be used. I am also finding a lot of parents who own property are offering to go as guarantors for their children. This is great because if they are willing to guarantee up to 20% of the purchase price this will help the banks look at their application more favorably. Also, as stated above the client will also be offered a more competitive interest rate along with a cash contribution to help with professional costs such as solicitors costs and registered valuation costs.
Scenario 3: We are a couple in our 30s – no kids. We are both working and have saved enough for a 20% deposit. We have heard that if we buy or build a home that offers an income stream then we might qualify for some additional funding? If this is the case then what is the criteria? Can you advise us?
The banks will use additional incomes such as self-contained units/dwellings as part of the property, and borders and flatmates. As this is to produce an income (rent/board) the bank will consider this as ongoing income and therefore it increases your borrowing ability. By doing this you will be able to borrow more than just using your salary based incomes. For example, if you had a self contained flat that could be rented separately and this rented for say $400 P/W or $20,800 P/A. The bank will use this income to help prove affordability of the mortgage therefore may lend you circa an additional $150,000 on top of what they would lend you based only on your salary incomes alone.
The information provided in this article is of a general nature only and is not intended to address specific circumstances of any particular individual or entity. Before making any investment or other financial decision, we recommend you seek advice from qualified professionals in respect of your individual personal and financial situation.