You don’t necessarily need a 20% deposit to buy a home

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You don’t need a 20% deposit to buy a home. In fact, it’s possible to secure a home loan in NZ with a  deposit as low as 5% if you get the right help and you’re able to service the mortgage. 

Here’s how you could go about locking in a low-deposit loan.

Securing a Welcome Home Loan

Welcome Home Loans are underwritten by the government and offered by select lenders to first home buyers who meet eligibility criteria. If you fit the following criteria, you may only need a 10% deposit to secure a Welcome Home Loan:

  • Your income is under $85,000 (before tax) for one person or $130,000 for two or more. 
  • The house you’re buying costs under $600,000 for an existing property and $650,000 for a new home (in Auckland). 
  • You’re a first home buyer or a previous home owner in a similar financial position to a typical first home buyer. 

There are other criteria and extra expenses associated with Welcome Home Loans so check the website, and speak to an expert before applying. 

Buying a new build

If you buy a new build directly from the developer or build a property yourself, you may be eligible for a home loan with a 10% deposit. This is because the Reserve Bank exempted new homes from the rules to encourage their development.

Choosing the right lender

No more than 20% of a lender’s loans may be to low-deposit borrowers, according to Reserve Bank rules. 

The trick is to ensure that you choose a lender who’s got room left in their cap and is thus more likely to lend to you. Mortgage brokers come in handy here, thanks to their close relationships with lenders and industry knowledge. If you go with an experienced broker, they’ll be able to point you in the right direction and help you with your application to increase your chances. 

Keep in mind that most low deposit loans will come with a few extra costs. These might include a low equity fee, or an extra margin on your interest rate, which lenders sometimes charge to cover their losses in the event that you can’t pay your mortgage. 

How can you increase your chances?

There are a few things you can do to increase the chances of your low-deposit loan application being accepted:

  • Have a good credit history. 
  • Demonstrate good financial management, including no late payments, dishonours or defaults. 
  • Have low debt levels.
  • Show steady long term employment and a high income. 
  • Prove a history of savings (i.e. a saved deposit). 

If you haven’t saved a 20% deposit, you might not have to wait. Give the expert mortgage advisors here at Money Empire a call today, and you may be able to buy a home sooner than you thought. 

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