Prepare For Home Ownership By Getting Your Finances In Order
Our tips to get you ready for buying your first home in New Zealand
Posted October 2023
Buying a home is one of the biggest decisions you’ll make in your lifetime, so it's essential to ensure your finances are in order before applying for a home loan.
At Unity, we're driven by our purpose of financially empowering our members and helping to close the housing affordability gap. We’re here to help you, every step of the way. Getting your finances in order is the first step in preparing to buy a home in New Zealand, so we’ve developed some tips to get you started.
Did you know that 9 out of 10* New Zealanders are changing their spending habits (93%) due to feeling the pinch of the rising cost of living and inflation? So, saving for a home deposit on top of this can feel like a big goal – but without a plan, a goal is simply a dream.
Topics that we'll cover here include:
- Building your home loan deposit
- Creating a budget
- Clearing your debts
- Planning for upfront and ongoing costs
- Securing your savings
- Getting your paperwork ready
1. Building your home loan deposit
Saving a deposit can be the most difficult part of the entire home-buying process. So, how much do you need? And how can you get there?
A good place to start is by using a mortgage repayment calculator. This will give you estimated repayments based on the amount you're looking to borrow (loan amount) and the length of time you will take to pay it off (the term).
Once you have an idea of how much you could afford to borrow, you can work out the amount of deposit you’ll need. The ideal deposit most banks look for is 20% of the property price, so on a $500,000 home, your deposit would need to be $100,000. That’s a lot of money! Unity, however, only requires a 10% deposit or just a 5% deposit if you qualify for a First Home Loan.
The good news is, there is help available in the form of a First Home Loan, First Home Grant, using your KiwiSaver, or obtaining a gift from a family member. Saving a deposit doesn’t happen overnight. It takes patience, dedication, and perseverance – but the reward of owning your first home is worth it!
2. Creating a budget
Keeping track of your finances is key to ensuring you're financially prepared enough to apply for your first home loan. Creating (and sticking to) a budget will help you to identify areas in which you might be overspending and work out what you can cut back on or save. It can also help you to determine how much you could save towards your home-ownership goals. Download our free Budget Planner.
3. Clearing your debts
Outstanding debts can seriously impact your ability to obtain a home loan, especially if a large portion of your income is being spent on debt repayments. Dishonoured direct debits, late or missed Buy Now Pay Later payments, unarranged overdraft fees or unpaid credit cards can all be a cause of concern for your lender. If you have multiple debts that are proving difficult to manage, you could consider a debt consolidation loan which will bundle all your debts into a single loan, making it easier to keep track of. Try this debt consolidation calculator to see if combining your debts could help.
Another helpful blog to read is tackling debt one step at a time. It shows how one couple consolidated their debts through Unity and reduced their overall monthly repayments by $640! This allowed them to save more and get one step closer to owning their first home.
Alternatively, if you're finding it difficult to repay your debts, it's a good idea to get in touch with your lender to discuss your options and see how they might be able to assist. Otherwise, the team at MoneyTalks offers free help and support with day-to-day money matters like budgeting and debt management (you can even use this service anonymously). You can reach them on 0800 345 123, help@moneytalks.co.nz, or text 4029.
4. Planning for upfront and ongoing costs
When creating your budget, it’s important to allow for both upfront and ongoing costs that you may not have considered as a renter.
Upfront costs include things like Legal fees, a council Land Information Memorandum (LIM) report and Property valuations. These costs can quickly run into thousands of dollars, so it’s important to factor them into the equation early on.
Ongoing costs include things like Property rates, Home & Contents insurance, and maintenance (especially if you are buying an older home) and these need to be kept up to date.
5. Securing your savings
Choosing a high-interest savings account is a good way to boost your hard-earned savings. Watching your money grow over time is a great motivator and can help you to monitor your progress. If you're looking to lock your savings down for a period of time, so you won't be tempted to dip into the funds, a term deposit could be right for you. It's easy to apply online and you can choose an interest rate and term that suits you.
6. Getting your paperwork ready
There is a fair amount of paperwork involved in the home loan application process, so it's a good idea to start compiling all your documents in advance. This will help prevent a lot of back and forth with your lender.
For a list of the types of documents your lender may require, particularly if you're a first home buyer.
By following these steps, you can increase your chances of getting approved for a home loan - and be closer to your dream of home ownership.
Next, watch our home loan video.
Unity answers common questions to help you get started buying a home in this video with tips including:
- How much deposit do I need to buy a home?
- Where do I start?
- What can I afford?
*Perceptive research 2023