Buying a house is relatively straightforward for couples, and daunting for a single person, especially if it is their first home. This article explains how to buy your first home as a single person.
While the process seems relatively straightforward for couples to buy a house in New Zealand, it can seem daunting for someone to buy their first home as a single person — especially so if it is their first home.
This article will outline what you need to know when buying a house as a single person, and what you can do to reduce your risk and mortgage repayments.
The main reason is that most couples are double income. This means that they:
Ultimately a bank is taking a calculated risk on a home loan to be paid back. When a couple is double income they represent less risk — especially when most single people also mean single income. And this is represented in the amount of a pre-approval loan being smaller than that of a double income couple.
Being a sole income earner doesn’t mean it is impossible for you to get a home loan pre-approval or get into home ownership.
When you are saving to buy your own home, it can often take you more time and effort to save up for a home loan. And while most banks typically expect a 20% deposit, if you can save up even more for the price range that you are looking at, the better!
Having a larger deposit will also mean you will have smaller mortgage repayments for the lifetime of your home loan and pay less interest overall. Below is a breakdown of the three scenarios and the mortgage repayments and total cost of ownership.
Lenders typically accept deposits of around 20% however there are still opportunities to get into your own home from 5%. But lenders can only lend a certain percentage of home loans to those with a high loan to value ratio (LVR). At slice, we don’t recommend going for a low deposit home loan (high LVR) if it is avoidable. If you do so, lenders will treat you as a ‘low equity home loan borrower.’ This will increase your total cost of home ownership because:
Do whatever you can to build up a strong enough deposit. This includes looking into reading our blog post on ‘How much deposit do I need to buy a house?’ and then doing some research into Kainga Ora. You could also ask your parents if they would like to gift or loan you money so you can be a first home buyer.
Things that we recommend you check out to get a better understanding of buying your first home:
💡 Case study: Ngaire has a deposit of $100,000 and really wants to buy a $1,000,000 house. She finds out that she will be classified as a low deposit mortgagee. She does some research on Kainga Ora, Kiwibuild properties and plays around with a mortgage calculator. She finds out that she will be charged higher interest rates and other fees. She decides to build herself up to her dream home with a smaller house to start with.
Some house and land package companies offer lower deposits for you to get into your first home. There are typically some form of eligibility requirements, and you need to pay attention to what exactly the interest rate is. We recommend you get independent legal advice, especially if it is your first time going through a new build process.
While lenders love to see a healthy deposit, lenders also want to see that you are responsible with money and can afford your mortgage repayments. Even if you do have your deposit gifted to you, banks will want to see that you have saved up at least 5% of your deposit on your own.
Yes absolutely! And we recommend working with a solicitor or mortgage broker to help you in unlocking your funds. To be able to withdraw from KiwiSaver, you will need to have been contributing to it for at least three years. You will also need to leave $1000 in your KiwiSaver account.
Yes you can co-own a property in New Zealand. And that is exactly what we do here at Slice. To ensure things don’t get messy, we have also got some free co-ownership agreement templates for you to check out. We can also help you out with finding the right solicitors and mortgage brokers.
Buying a house with friends and family is a great way to lower the burden of saving up for a deposit all on your own. It also means that lenders will look at your application more favourably because now there is more than one income. You can save up for a bigger deposit faster and split the mortgage repayments — an excellent way to get onto the property ladder!
💡 Case study: Ngaire then hears about co-ownership with Slice. She asks a few of her friends if they would be interested in buying a $1,000,000 house together. Her friends also aspire to live in a million dollar property. They agree and put together a co-ownership agreement with Slice. They have a much larger deposit and Ngaire and her friends no longer have the higher interest rate or low-deposit fees.
If you are determined to buy a house on your own and on a single income, you want to show a strong savings history. You want to show that you are saving regularly. This is because banks examine your “financial personality”.
Even if you earn a lot, if you are not saving you can be limited with your pre-approval offer. And if you show a strong financial personality but don’t earn as much, your pre-approval offer might actually be higher.
A good way to check how lenders see you is to check your credit history. This can be done by doing a credit check.
A good way to get into your own home is to consider buying a house with others. This may take a lot of the stress off saving up a deposit and servicing the mortgage repayments on your own.
While it is quite normal to take your time to pay off your student loan, it should be your number one priority to pay off any high interest debt as fast as possible. This includes any credit card bills, car loans and any personal loans.
If you do have any bad forms of debt, paying your debt should be your priority — not saving! This is because the interest rates tend to be much higher than that of saving and it will be costing you more.
💡 Case study: Ngaire is planning to buy a house with her friends. She has $100,000 in savings but also has high interest debts of $10,000. What should she do? We believe that she should pay off her high interest debts with her savings and continue to save thereafter. This is because high interest debts have a drag on saving potential in the long run.
Financial advisors are specifically qualified to give you financial advice — and not like anyone else — it’s their job to do so. Yes, they will probably start by saying the obvious ‘spend less and save more', they will be able to help you structure a budget to help you achieve your financial goals. They could also provide you advice on if you should go for a low deposit home loan or save up more money before looking at properties. They can also help you think about how you can afford your mortgage repayments once you have bought your own home.
A mortgage broker is on your side. Their job is to find you the best deals from all the lenders that they work with. Typically, this includes most of the banks in New Zealand and some other forms of lenders such as Simplicity.
By working with a mortgage broker, you can save thousands in the short term and years in the long-term. They can help you find the best interest rates and even find you cash back deals — a popular deal many banks run to get you as a customer.
Not all rates are advertised. So it is worth shopping around with someone who knows what they are doing!
If you are living on your own and see yourself doing so for a while, you don’t need to buy a four-bedroom house. Be reasonable with your expectations and this will help you find the right type of property — whether it be a stand-alone property, townhouse or apartment.
House hunting can be a bit of an ordeal. And if you see yourself living with other people (i.e., flatmates or friends and family), then by all means consider a larger home. Just be aware of the trade-off of getting a larger deposit. Or better yet, if you are planning to live with friends or family, buy the property together with Slice :)
There is a lot of talk about house prices in Auckland and Wellington being incredibly unaffordable. But do you really need to live in these centres? If the answer is yes, then by all means! But if you can work from home and want to start fresh, like a lot of people, moving away from the big centers can offer a much more relaxed lifestyle. Places like Christchurch and Hamilton are a lot more affordable and also offer something a little bit different.
If you do already have friends and family living in the regions, you could also go in to buy a house with them to make your deposit and mortgage repayments even lower — especially if it is your first home loan.
Being a home owner is not easy when you are single. But that shouldn’t stop you from being able to do either on your own or with your friends and family. It is important to remember that lenders look at you more than just a deposit. They assess the risk you pose of not being able to pay your loan back. That is why it is important to pay attention to your finances as soon as you want to buy a house.
Work with others — financial advisors, mortgage brokers and real estate agents to better understand what you can afford, how and why.
And if you are intending to buy with friends and family, reach out to Slice. We can help you with a co-ownership agreement and set you up with solicitors that know what they are doing.
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