What is a Welcome Home Loan?

by | Apr 4, 2024 | 1st Home Buyer

A welcome home loan is tailored for first home buyers who can afford mortgage repayments but find saving for the standard 20% deposit challenging. It’s an initiative designed to give you a leg up onto the property ladder, transforming your homeownership dreams into reality.

KiwiSaver plays a role in this journey, too. If you’ve been contributing to this savings scheme, you may be eligible to withdraw your contributions to go toward purchasing your first home. That, along with the potential to receive a First Home Grant, means there’s added support to help make home ownership more accessible for you.

Navigating the path to owning a home in New Zealand need not be a solo trek. Whether you’re considering a welcome home loan or seeking a First Home Grant, the team at OneStop Financial Solutions are here to help keep you well-informed and prepared to make the right decisions for your future.

With guidance on what financial help you could be eligible for, your aspiration of having a place to hang your hat could soon become a place to hang your heart.

What Is a Welcome Home Loan?

A welcome home loan is specifically designed to assist first home buyers in New Zealand to purchase their initial home by offering a loan that requires a smaller deposit compared to traditional bank loans.

The distinguishing factor of these loans is that they are backed by a government entity – initially by Housing New Zealand, which is now Kāinga Ora.

Kāinga Ora doesn’t provide loans directly; rather, it underwrites them. Underwriting refers to the financial guarantee that Kāinga Ora offers to approved lenders who issue welcome home loans.

Participating Lenders in the Scheme

Not every lender participates in the welcome home loan scheme, but our experienced mortgage brokers can guide you on this.

Some participating lenders are:

  • Kiwibank
  • SBSbank
  • Westpac
  • The Cooperative Bank
  • Unity Money
  • NZHL
  • Nelson Building Society
  • Nest Home Loans

This backing significantly lessens the risk for lenders and enables them to relax the deposit criterion for borrowers like you.

Advantages for First Home Buyers

If you’re a first home buyer, a welcome home loan offers benefits, such as:

  • Lower deposit requirement: The loan reduces the deposit hurdle down to as little as 5%, a substantial decrease from the standard 20% most other lenders seek.
  • Increased borrowing power: With a smaller deposit you may be able to borrow beyond what a typical lender might allow based on your financial standing.

This lending scheme represents a tangible step forwards in your home-buying journey, offering a blend of support and financial practicality that can help you secure your first home sooner.

Welcome Home Loan Eligibility Criteria

If you’re dreaming of buying your first home, a welcome home loan is an initiative that may help you achieve that dream. You’ll need to meet specific eligibility criteria, which cover your income, the property price, your residency status, and how much deposit you have saved.

Income and Price Caps

For a welcome home loan, the combined income for all borrowers must be less than $95,000 for a single borrower or not more than $150,000 for two or more borrowers.

Regional Variations and Price Caps

Your ability to get a welcome home Loan may be influenced by where you plan to buy. In New Zealand, different regions have varying price caps, which dictate the maximum value of the property you can purchase with this type of loan.

Some examples of price caps for existing homes are:

  • Waitaki District – $400,000
  • Dunedin City – $500,000
  • Hastings District – $625,000
  • Hamilton Urban Area – $650,000
  • Wellington Urban Area – $750,000
  • Auckland – $875,000

Residency Requirements

You must be a New Zealand citizen or a permanent New Zealand resident to be eligible for a welcome home loan. This means you either hold a New Zealand passport or have been granted permanent residency and are living in the country.

Deposit Considerations

Traditionally, home buyers need to save a 20% deposit, but with a welcome home loan, you may only need a 5% deposit. This can be a combination of your savings and any eligible government grants, like the KiwiSaver First Home Grant.

Having a higher deposit can increase your borrowing power and potentially reduce your loan costs.

Financial Aspects of Welcome Home Loans

Loan Value Ratios and Mortgage Insurance

Loan Value Ratios (LVRs) are a key component in determining how much you’re allowed to borrow. With a welcome home loan, the required deposit can be lowered to as little as 5%, as per the guidance from Kāinga Ora.

However, borrowing more than 80% of the property’s value involves paying for Lenders Mortgage Insurance (LMI), a protection for the lender in case you default on your loan.

This is added on to your loan and called a low equity premium. The percentage you pay varies from 0.25% up to 2% depending on the lender, and how much deposit you have.

Interest Rates and Fees

Your welcome home loan will come with an interest rate, which can be either fixed or floating. Fixed rates offer stability in repayments, while floating (variable) rates fluctuate with the market.

It’s important to factor in any fees tied to the mortgage – these can include application fees, solicitor fees, or account maintenance fees, which vary among different providers.

Grant Contributions and Eligibility

If you’re dipping into your KiwiSaver account, you might be eligible for the First Home Grant, which can provide a significant cash contribution toward your deposit.

Your eligibility for this grant is determined by several factors, including your income, the price of the house, and how long you have been contributing to KiwiSaver. We’ve covered this further in this post.

The Buying Process

Starting on the journey to purchase your own home is exciting but it also involves several important steps that you must carefully navigate. This includes obtaining pre-approval, finding the right property, and finalising your purchase.

Pre-approval Stages

Firstly, you’ll want to secure a pre-approval for a loan, which is a lender’s offer to loan you a certain amount under specific terms. Pre-approval gives you a clear idea of what you can afford, whether you are looking for a new home or an existing one.

Get your proof of income, savings, and identification together, then talk to our mortgage brokers. We can help you get your documents in order to make pre-approval a breeze.

Searching for a Property

With your loan amount pre-approved, you can start searching for a property that fits within your budget. It’s beneficial to enlist the help of a real estate agent, who can guide you to homes that meet your criteria.

Whether you’re set on a brand-new property or an older home with character, stay within your pre-approved budget to avoid any financial strain.

Finalising the Purchase

After putting in the hard yards and finding a property you love, it’s time to finalise the purchase. This often involves negotiating the price with the seller to reach an agreement.

Once the deal is settled, you will work with your legal representative to complete all necessary paperwork. We’ll help you finalise the loan details with your chosen lender.

When everything is signed off, you’ll be ready to pick up the keys to your new home.

Additional Support for First Home Buyers

As a first home buyer, you’re in a great position to take advantage of various support mechanisms designed specifically for you, such as First Home Grants and KiwiSaver withdrawals. These tools can significantly boost your purchasing power and help you get onto the property ladder a bit more easily.

First Home Grants and KiwiSaver Withdrawals

First Home Grants offer a tangible leg up to your deposit, potentially awarding you several thousands of dollars towards your first home if it falls within regional house price caps.

Your KiwiSaver contributions aren’t just savings for retirement—you can withdraw these funds to contribute toward your first home as well, providing a good chunk of financial support in conjunction with your grant.

Other Assistance Programmes

You’re not limited to grants and savings withdrawals. Initiatives like the Kiwibuild program aim to increase affordable housing supply and provide you with tailored options that might not be available on the open market.

Additionally, the First Home Loan scheme helps you get a mortgage with only a 5% deposit, making homeownership more accessible if you meet the eligibility criteria.

When taking on a home loan, it’s important to be prepared. Handy online tools and calculators can help you get a clear idea of what you’re in for. They show you how much you can borrow and what your repayments might look like.

  • Deposit Calculators: It’s important to know how much deposit you’ll need. A deposit calculator helps you figure out this initial chunk based on your intended property value.
  • Loan Repayment Calculators: Regular repayments are a big part of your home loan commitment. A loan repayment calculator plays a crucial role in budgeting by providing you with monthly, fortnightly, or weekly repayment estimates. It factors in the loan amount, term, and interest rate. Check out our loan repayment calculators here.
  • Lending Criteria Tools: Lenders have their criteria, and you must meet them to get your loan approved. Credit and lending criteria tools help you understand if you’re likely to qualify. This might include checking your credit score or comparing it against the lender’s requirements.
  • Borrowing Power Calculator: Wondering “How much could I borrow?” Use a borrowing power calculator to get an estimate. This considers your income, expenses, and other financial commitments. ANZ’s borrowing power calculator is designed to provide you with a clear picture.

Using these tools will equip you with the knowledge to plan your finances effectively. And remember, it’s always wise to seek professional advice.

Planning for Success

Here are our tips for a successful entry into the property market.

Build a Savings Plan

  1. Set a clear savings goal: Determine how much you’ll need for a deposit, solicitors fees, and other expenses.
  2. Create a budget: Track your income and expenses to see how much you can realistically save each week, fortnight, or month.
  3. Automate your savings: Set up automatic transfers to a dedicated savings account to make saving easier.
  4. Cut expenses: Look for ways to reduce unnecessary spending, such as dining out less, re-evaluating subscriptions, and whether you really need the latest fashion trends.
  5. Increase your income: Consider taking on a side job, freelancing, or asking for a wage increase to boost your savings ability.
  6. Be patient and consistent: Saving for a home takes time, so stick to your plan and celebrate small milestones along the way.

The key is to create a realistic savings strategy tailored to your financial situation, and remain disciplined in your efforts to reach your home ownership goal.

Ensure your saving strategy is custom-tailored to align with your individual circumstances, prioritising regular contributions into a high-interest savings account. If you need help managing your money, talk to our friendly financial advisers.

Understanding Credit History and Criteria

Your credit history is the foundation upon which lenders will evaluate your loan eligibility. Our mortgage brokers are highly experienced at getting loans with banks and non banks. If you don’t think you’ll meet the stringent credit requirements of the banks, don’t despair. Talk to us instead.

Stay informed about market trends and be prepared to adjust your mortgage structure as your needs evolve. This ensures that your first home is a joyful milestone rather than a financial hurdle.

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