First Home Buyer? You’ve (Still) Got Options
Buying your first home is an exciting milestone, but with property prices continuing to rise and interest rates reaching new heights, getting there can feel like an uphill battle. To add insult to injury, the First Home Grant (which gave eligible first-home buyers around $5000 towards a house deposit) was also axed earlier this year.
Ok, that’s the bad news. How about some good news: There are still a number of other options available for first home buyers.
In this blog post, we’ll explore three of these avenues: family-assisted home loans, co-ownership with family and friends, and the Kainga Ora First Home Loan.
FAMILY-ASSISTED HOME LOANS
Designed for first-time buyers who have a low (or no) deposit, a family-assisted home loan allows your family members to use equity in their own home as security to ‘guarantee’ your mortgage. If you have family who are willing to help in this way, this can reduce the financial pressure of a larger deposit and enable you to purchase a property sooner than you might have otherwise been able to.
Key Benefits:
Lower Deposit Requirement - By using a family member's equity as security, you might be able to get into your first home with a smaller deposit.
No Cash Upfront - Parents or other family members are able to help you get into your first home, even if they don’t have actual cash to give you.
Special Loan Structure - These types of mortgages are structured to allow family members to assist, usually without needing to take on the full responsibility of the whole mortgage. A typical structure would be a joint loan with you and your family for the portion of the loan that is being guaranteed, documented over a shorter term (usually 10 years). This enables the loan to be paid off as soon as possible to get the family ‘off the hook’. The rest of the loan is usually under your name, and structured over a suitable loan term. Often this portion is interest-only, so you can afford the higher repayments on the family guaranteed loan.
Things to Consider:
Risks for the Guarantor - The family member(s) providing the equity will be taking on some risk, because they’re using their own property as security. If you fall behind on paying your mortgage, they’ll be responsible for some or all of your debt.
Loan Terms - It’s crucial that you fully understand the terms of the loan, including repayment conditions and what happens if you default. Make sure you seek independent financial advice (we can help with that!).
CO-OWNERSHIP WITH FAMILY AND FRIENDS
One option that’s becomingly increasingly more common is co-ownership - when first home buyers team up with family or friends to buy a property together. In this scenario, multiple parties pool their resources to make up the deposit and also split mortgage repayments, too.
Key Benefits:
Shared Financial Burden - By splitting the deposit, mortgage repayments and other costs, you may be able to purchase a property that would have been otherwise out of your reach.
Shared Responsibilities - Maintenance, insurance, and other costs can also be shared, reducing the financial and time burden on any one person.
Things to Consider:
Legal Agreements - It’s essential to have a solid legal agreement in place that outlines each party’s responsibilities, what happens if someone wants to sell, and how profits or losses will be split.
Relationship Dynamics - Co-owning a home can put pressure on relationships, so it’s important to consider how this arrangement might affect your friendship or family ties.
KAINGA ORA FIRST HOME LOAN
With a Kainga Ora First Home Loan, you only need a 5% deposit to get into your first home… and the 5% deposit doesn’t necessarily need to be pure savings - gifts, KiwiSaver funds and grants can all be used. This is a government-backed initiative is designed to make it easier for first-time buyers to buy a home - but it’s only available through selected banks and lenders.
As well as having a 5% deposit, there are other criteria you’ll need to meet to be eligible for a First Home Loan. These include things like income caps, property price caps, citizenship/residency criteria and more.
Key Benefits:
Low Deposit Requirement - The First Home Loan allows you to buy your first home with as little as a 5% deposit, and this 5% doesn’t necessarily need to be all your own savings. Your deposit can be gifted by a relative, and/or you may also be able to use your KiwiSaver funds towards your 5% deposit, too.
Government-Backed - The loan is backed by the government, giving lenders more confidence to approve applications.
Low-Income Friendly - First Home Loans are specifically designed to help people with lower to moderate incomes.
Things to Consider:
Lender Criteria - While the loan is government-backed, individual lenders may have additional criteria that you need to meet.
Income Cap - The combined annual income of the household must be $150,000 or less for one or two borrowers, and $180,000 or less for three or more borrowers.
House Price Cap - The home you intend to buy must be within the regional house price cap, which varies depending on the location.
READY TO TAKE THE NEXT STEP?
There are many pathways to homeownership - the Kainga Ora First Home Loan, a family-assisted loan or co-ownership being just three of these. If you’re unsure about which option is right for you, I’m here to help.
And if you don't qualify for some of these options or your family isn't keen/able to help, don't worry - we might be able to look at some other creative ways of achieving your homeownership dream. Don’t count yourself out until you’ve spoken to a good mortgage broker, like us!
Get in touch today, and I can assess your individual needs and guide you towards the most suitable options for securing your first home. Together, we can navigate the complexities of the mortgage process and help get you the keys to your first home.
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact our mortgage broker to ensure it is suitable for your circumstances.