Picture this: you’re standing at the front door of your dream home, heart racing with excitement as you slide the key into the lock for the first time. Feels amazing, right? But before you can turn that key, there’s one major hurdle to clear – the dreaded minimum deposit.
If you’re like most Kiwis, you’ve probably heard the magic number thrown around: 20%. Yes, the standard minimum deposit on a house in NZ is 20%. So, how much money do you need to save? If you’re looking to buy a $500,000 property, you’ll need at least $100,000 saved for a deposit.
But all is not lost. There are ways around it, low deposit home loan options, and helpful KiwiSaver incentives to consider. So let’s take a look at some scenarios and help you understand minimum deposit requirements.
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What is the Minimum Deposit on a House in NZ?
A 20% deposit is the gold standard for house deposits here in New Zealand. In other words, if you’re eyeing up a $500,000 property, you’ll need to cough up $100,000 upfront.
Why so high, you ask? The 20% rule is actually a safeguard put in place after the Global Financial Crisis to protect both homebuyers and lenders from biting off more than they can chew. Think of it as a financial safety net.
For buyers, stumping up a hefty 20% deposit proves to the bank that you’re financially stable and serious about homeownership. It also means you’ll borrow less overall, translating to lower repayments and less chance of ending up “underwater” if property values dip.
On the flip side, the 20% buffer gives lenders a bit of breathing room if you default on your mortgage and they have to sell your house at a loss. It’s their way of mitigating risk in a sometimes-volatile housing market.
LVR: What it means for your deposit
Okay, time to throw another acronym into the mix: LVR. No, it’s not a trendy new lingo, it’s short for Loan-to-Value Ratio. In plain English, it’s the percentage of the property value that you’re borrowing.
So, if you have a 20% deposit on a $500,000 house, you’ll need an $400,000 mortgage. That means your LVR is 80% ($400,000 ÷ $500,000 = 0.8 or 80%).
Your LVR directly impacts how much you can borrow and sometimes even the interest rate you’ll pay. Generally, lower LVRs (larger deposits) equal more favourable terms.
Most banks have tiered LVRs, so you might snag a better deal (such as a lower interest rate) with a 30% deposit compared to the baseline 20%. It pays to crunch the numbers and see what deposit amount works best for your budget.
Low Deposit Options: Is a 5% Deposit Possible?
There are a few ways to get your foot in the door with a smaller deposit.
Now, before you start house hunting, there are a few caveats. Traditional lenders will typically only offer 5% deposits to borrowers with stellar credit and stable, high incomes.
You’ll also likely be required to take out Lenders Mortgage Insurance (LMI) which protects the bank if you default. This is an insurance policy for the bank – that you pay for. Some banks charge this as a percentage of your overall loan amount, and call it a low equity premium. These fees add up over time, and can significantly impact the amount of money you’ll repay. Sometimes, it’s worth saving a little harder if you can.
Purchasing Your First Home With a Kainga Ora Welcome Home Loan
Then there’s the NZ Government’s Welcome Home Loan Scheme. Under this program, eligible buyers can nab a mortgage with as little as 5% down. The catch? You’ll need to meet certain criteria like income caps and regional house price limits.
To qualify, you must:
– Be a first-time buyer or ‘second-chancer’
– Earn under $95,000 for one buyer or $150,000 combined
– Buy a home under the regional price cap ($400,000-$875,000 depending on the area)
– Live in the house for at least 6 months
– Have a good credit history and proof of income
It’s a bit of hoop-jumping but trust me, it’s worth it for the chance to buy a home with a pint-sized deposit!
Using KiwiSaver for your first home deposit
Attention all KiwiSaver contributors – did you know you can tap into your KiwiSaver funds to buy a house? That’s right, the government will actually reward you for saving! While the NZ government has wrapped up the Kainga Ora first home grant, you can still apply to use your KiwiSaver funds towards your deposit.
If you’ve been diligently stashing away cash in your KiwiSaver for at least three years, you can withdraw all but $1,000 to put towards your deposit. It’s like getting a big fat bonus from your past self.
To make a KiwiSaver First Home Withdrawal, you need to:
– Have contributed for 3+ years
– Be a first-time buyer (or a ‘second-chancer’ in some cases)
– Leave a minimum balance of $1,000
– Use the money for an owner-occupied home
– Live in the house for at least 6 months after purchasing the home
It’s a seriously smart way to supercharge your deposit without feeling like you’re sacrificing your retirement dreams. Talk to our advisers at OneStop Financial Solutions today to see if you qualify. We are always happy to provide more information, and offer personalised advice. As independent brokers, it’s usually free.
Lending Criteria and Home Loan Pre-Approval
When applying for a home loan, banks and lenders use certain lending criteria to assess your application. This includes your deposit amount, income, expenses, credit history, and employment status.
One smart move is to seek pre-approval from a lender before starting your house hunt. Pre-approval gives you a clear idea of how much you may be able to borrow and shows vendors that you’re a serious buyer. Keep in mind that pre-approval is not a guarantee and you’ll still need to meet the lender’s criteria once you find a property.
Some common factors banks look at include:
- The deposit source (e.g. savings, KiwiSaver, gift from parents)
- Your credit score and history
- Your income and expenses
- Your employment stability
- Any other debts or financial commitments
Basically, they want to know that you’re a safe bet and won’t go rogue with your mortgage repayments.
Here’s where it pays to shop around. While most banks stick to the 20% rule, some are more lenient than others, especially for low LVR borrowers. Then there’s always non banks and second tier lenders to consider.
The key is to do your homework, compare offers, and find a lender who’s willing to work with your unique situation. Don’t be afraid to negotiate or seek expert advice from our Auckland mortgage brokers to get the best deal possible. We can help you get better rates and know who to talk to get you the best chance of approval.
Tips for boosting your savings
Okay, so you know how much you need to save – but how do you actually do it? Saving for a house deposit can feel like climbing Aoraki, but with the right strategies, it’s doable.
Here are some tried and true methods to ramp up your savings:
1. Set a clear savings goal with a timeline
2. Create a budget and stick to it
3. Automate your savings with a separate account
4. Cut back on unnecessary expenses
5. Boost your income with a side hustle or freelance work
6. Take advantage of high-interest savings accounts or term deposits
7. Consider moving back home temporarily to save on rent
It’s not glamorous, but trust me – the sacrifices are worth it when you’re sipping coffee in your very own kitchen.
Creative ways to increase your deposit faster
Saving not happening fast enough? Here are some outside-the-box ways to help build your deposit:
1. Ask for a raise or promotion at work
2. Sell unwanted items online or at a garage sale
3. Rent out a spare room on Airbnb or get a flatmate
4. Use cashback credit cards for everyday expenses
5. Ask family members for a one-time gift or interest-free loan
6. Consider buying with a partner or friend to combine savings
The possibilities are endless – get creative and watch your deposit grow!
FAQs about Minimum Deposits
Got burning questions about minimum deposits? We’ve got answers!
What if I can’t afford a 20% deposit?
Don’t panic! If you have a stable income and good credit, you may qualify for a low deposit loan. Chat to a mortgage broker about your options.
Do I need a deposit for a new build home?
In most cases, yes. However, some developers offer “turnkey” packages which include the deposit in the overall cost. You’ll still need to prove you can afford the mortgage repayments though.
How do deposits work for investment properties?
Deposits for investment properties typically range from 20-40% depending on the lender and your financial situation. You may also need to prove you have enough rental income to cover the mortgage.
Can I get a pre-approval with a 5% deposit?
It’s possible to get pre-approval with a 5% deposit if you meet the criteria for the First Home Loan scheme or have a strong application. However, you may be charged a low equity premium.
Conclusion
Let’s recap the key takeaways for a minimum deposit on a house in NZ:
– 20% is the standard deposit, but 5% is possible in some cases
– Your deposit affects your LVR and borrowing power
– KiwiSaver and First Home Loans can boost your deposit
– Banks have different criteria for assessing deposits
– Saving is essential – set goals, budget, and get creative
Now that you’re armed with this knowledge, it’s time to start turning that dream of homeownership into a reality. Whether you’re starting from scratch or halfway there, every dollar saved gets you one step closer to that shiny new set of keys.
