Purchasing your first home is a significant financial commitment, but it is also an exciting time. The process is not necessarily as easy or as straightforward as it may seem and if you are thinking of purchasing your first home you should obtain legal advice and assistance regarding this process. RSM Law have an expert team of Conveyancing Professionals and Solicitors ready to help. Please call us on 0800 RSM LAW (0800 776 529).

Despite the complexity, there are steps first home buyers can take, even before they enter into a sale and purchase agreement, which can simplify the process. This includes:

1. Taking advantage of every available source of funding including:
   1. a mortgage or First Home Loan;
   2. the Kiwisaver Withdrawal; and
   3. a gift.
2. Ensuring they have enough funds to pay the deposit on signing the agreement or on the agreement becoming unconditional.

FUNDING YOUR PURCHASE

Mortgage or First Home Loan

A mortgage will, in most cases, be the primary source of the purchase price. Many banks will expect a deposit of 20% for their lowest interest rates. The deposit can come from any combination of the sources discussed in this article, however 20% can be a large sum of money and will usually require a cash contribution. Alternatively, first home buyers may be eligible for the First Home Loan which is offered by some select lenders. The First Home Loan may be a more appealing option as a first home buyer only needs a 5% deposit.

A first home buyer may be eligible if:

• They have an income below $95,000 if purchasing alone, or below $150,000 if purchasing as a couple or group;
• The Purchase Price is within the regional price cap;
• This is their first home or they are a previous home owner in the position of a first home buyer; and
• They have at least a 5% deposit.

The First Home Loan also has the following additional requirements:

• They must not currently own any other property;
• They must be purchasing a property that is less than 1 hectare;
• They must be purchasing a home to live in as their primary place of residence;
• They must pay a lender’s mortgage insurance premium of 1.2% of the loan account and, potentially, other fees depending on the lender;
• They must be a New Zealand Citizen, New Zealand Resident or a New Zealand Resident Visa holder and ordinarily resident in New Zealand; and
• Although not a requirement for eligibility, many lenders will require that they are over 18 years old.

We recommend that before any first home buyer begins looking for a house, they consult with their bank to establish what sort of deposit is required for the first home buyers price range, how much the bank is willing to lend and whether a First Home Loan is an option.

First Home Kiwisaver Withdrawal

Another source of additional funding may be a first home buyer’s Kiwisaver funds. An eligible first home buyer may withdraw most of, or part, of their savings to put towards buying their first home if:

• They have been a Kiwisaver member for at least three years;
• They intend to live in the property; and
• They leave at least $1,000 remaining in their Kiwisaver account.

We recommend that first home buyers consult with their Kiwisaver providers, as not all providers permit this type of withdrawal. We also recommend that they discuss whether they can withdraw their Kiwisaver for payment towards the deposit, rather than payment towards the settlement price. Like the First Home Grant, a first home buyer can apply for pre-approval which will estimate how much money will be available on withdrawal.

A Gift

A first home buyer may receive a gift (such as a gift from a family member) to help fund their purchase. If the first home buyer is also funding through a mortgage from their bank, they will need to discuss any gift they receive with their bank. The bank will often require documents to be drafted to record the gift.

A gift differs from a loan as there is no expectation to repay the amount. Because of this, it is recommended that the donor (the person gifting the amount to the first home buyer) receives their own advice prior to making any gifts.

PAYING YOUR DEPOSIT

A deposit is a goodwill payment to the Vendor and is usually 10% of the purchase price. Many people have the funding to pay the purchase price on settlement, but forget that almost all of this money will only be available on settlement, or a few days prior. As this article has already discussed, some Kiwisaver providers permit withdrawals for payment towards the deposit. However, even when this is permitted a further cash contribution, such as savings will be required.

We recommend that first home buyers consider their budget, estimate the deposit value, consider whether a Kiwisaver withdrawal is possible or necessary and set aside a sum of money to cover any cash contribution that may be required.