How to save for a deposit and other costs when buying a home


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Getting a deposit together takes careful planning, saving and investing.

But your deposit isn’t the only cost of buying a home: there’s also the mortgage, insurance, legal fees and more. Let’s break it down into steps.

How to save for a deposit and other costs when buying a home

Getting a deposit together takes careful planning, saving and investing.

But your deposit isn’t the only cost of buying a home: there’s also the mortgage, insurance, legal fees and more. Let’s break it down into steps.

Steps to save your home deposit

1

Estimate how much of a deposit you’ll need.

Generally, you’ll need to come up with 20% of the purchase price as your deposit. While it may be possible to purchase a home with a lower deposit of 10% or even 5%, this typically brings more risk for both the borrower and lender, so these are harder to get approved for.

Loans that are for more than 80% of a property’s value (so a deposit of less than 20%) tend to have higher charges, which can vary a lot. Some banks charge for lender’s mortgage insurance, while others increase the interest rate to cover the risk.

If you currently own your home and are looking to move, you will have built up equity that you can use towards the deposit of your next one. (Equity is the amount of your home that you own.) This makes it easier to trade up, so you’ll need to include it in your calculations of how much you’ll need.

For more, see our guide to find out how much of a mortgage you could get. You can also get an idea by plugging some loan amounts into our mortgage calculator to see how various scenarios could play out.

2

Set your goal to buy your home.

Setting a goal to buy a home helps you stay motivated and on track to achieve it. It can also be useful to keep your ‘why’ for buying a home front of mind – all the great reasons you’d like to buy your own place.

It’s a great idea to write out your goal as ‘We will have $x for [your goal] in x years’ time.’ This helps you have something to work towards and lets you track your progress.

If you’re buying a home with a partner, whānau or friends you’ll need to work out how much of the deposit you’re each responsible for. Consider the following questions:

  • Will you be contributing the same amount?
  • Where will you put your savings (for example, in a joint account or separate investments)?
3

Explore KiwiSaver and government support.

If you’re buying a first home, there are ways to help you build up a deposit.

Have you contributed to your KiwiSaver for more than three years? You will be able to withdraw almost all of the money in your account to help buy a first home (except for $1000). Our KiwiSaver calculator can estimate how much you’ll be able to build up and how long it will take.

You could also be eligible for a KiwiSaver First Home Grant, which is up to $10,000. Take a look at our guide on using KiwiSaver for your first home to get the steps.

There is also government support that you can take advantage of, so it literally pays to look into your options.

4

Estimate how long it will take you to reach your goal of buying a home.

It can be daunting looking at that big number you need to save! But we’re here to help you break it down. Take a look at your budget with our budgeting tool to work out how much you’ll be able to put towards your deposit every time you get paid. Then estimate how far away your goal is using our savings calculator.

A bigger deposit is cheaper in the long term

Keep in mind that the bigger your deposit, the less you’ll pay in interest on your mortgage.

Additional costs when buying a home

Upfront costs

Your deposit is just one of the upfront costs that comes with buying your first home. You’ll need to plan for lawyer’s fees, a builder’s report, Land Information Memorandum (LIM), and the costs that come with moving in.

Lawyer's fee

Before signing any sale agreement or mortgage paperwork, you’ll need to get it looked over by a lawyer. They also handle the ‘conveyancing’ or transfer to you once you buy a house. Fees vary, so shop around.

Find a lawyer and information about the legal issues involved in buying a home on the Property Law website.

Builder's report

A builder’s report can identify any possible problems with the house you’re looking at buying. An experienced builder will find things that the untrained eye will miss and may save you thousands.

LIM

A Land Information Memorandum (LIM) identifies any issues with the land the house is built on, such as drainage and landslip risks. Order a LIM through the local council, or your lawyer can do it for you.

Moving-in costs

You’ll need to set money aside for things like:

  • Moving services or truck hire
  • Connection fees for phone, power and internet
  • Any renovations or decorating you need to do straight away
  • Advertising for flatmates or tenants
  • Legal expenses and builder’s reports
Ongoing costs

Mortgage repayments aren’t the only thing you’ll need to budget for in your new life as a homeowner. Make sure to include insurance, rates and other ongoing costs in the calculations.

House, contents and mortgage insurance 

Your home will be your biggest commitment when you have a mortgage and your biggest asset once it is paid off, so you’ll need to protect it from the unexpected.

As well as house and contents insurance, you may need to look at life insurance and mortgage repayment insurance. Remember that lender’s mortgage insurance doesn’t cover you, it covers the bank if you can’t repay your loan.

Find out more about different types of insurance to consider for a new home.

Rates

When you buy your first home you become a ratepayer. Rates are charges set by local councils to provide and maintain things like roads, water supply, sewerage, parks, pools and libraries. They can be up to thousands of dollars a year.

Ask the real estate agent what a property’s rates are before making an offer – so you know if you can afford them. You may also be able to search for a property’s rates on the local council website.

Body corporate fees 

If you’re buying an apartment or townhouse that’s part of an accommodation complex and has ‘unit title’, you’ll probably need to pay body corporate fees. These cover things like insurance and maintenance of shared areas. Is there a fund for major maintenance work in place? Get a lawyer to go over these details carefully.

Getting ready for your mortgage application

Once you have nearly got your deposit together the next step is to get ‘preapproval’. You can do this before you have found a property, to make the buying process faster and easier. You can then house hunt knowing what you can (and can’t) afford from day one.

You’ll need to show your lender or mortgage broker these documents:

  • Identification
  • Proof of income
  • Three months of payslips
  • Evidence of your house deposit

Your lender or mortgage broker will then assess your situation as well as other details. They’ll let you know whether you’ve been preapproved and a specific loan amount you can expect to borrow.

There are guides available that can help you find a good deal on your mortgage, and learn about the various types of mortgages out there so you can make informed choices as you go.

For more on what to look out for when choosing a property, visit settled.govt.nz.

Make room in your budget for deposit saving

When you are saving up a deposit for a property, having a plan helps. Our budgeting tool can help you put yours in place and make sure it’s optimised to get to your goal.

USE OUR BUDGETING TOOL

Home-buying FAQs

Do I really need a $200k deposit?

Ideally you would have 20% of the house’s purchase price to put down as a deposit, which means that unless you are buying a million-dollar property, you will probably need less. There are ways of borrowing for a home with even less – for as little as just 5%, although this is typically a more expensive option that brings more risk to both borrower and lender. But it can be done. Here’s more on how much you can borrow.

How much deposit do I need?

Generally you can expect a lender to lend up to 80% of the value or price of a house (typically whichever is lower). Often, lower percentages are loaned on properties outside urban areas and on apartments. It is possible to borrow 90% or even up to 95% of a property’s value in some cases. But that’s a big risk for both the borrower and the lender. This means basically that it is best to have a deposit of 20% of the purchase price. Here’s more on how much you can borrow, as well as our mortgage calculator to run your figures.

Can I use KiwiSaver for a house deposit?

When buying your first home you may be able to make a one-off withdrawal of most of your KiwiSaver – as long as you’ve been a member for at least three years. You may even qualify if you have owned property previously. Our KiwiSaver calculator can help you find out how much you’re on track to save for your first home.

Can two families buy a house together?

You can indeed, and even use all of your different KiwiSaver accounts together. Here is one story of two families who did just that.

Can I buy a house without selling first?

You’ll want to work with a lender or mortgage broker to get preapproval for a specific loan amount that you can expect to borrow. Having this makes the buying process faster and easier, as you know what you can (and can’t) afford from day one.

You may also need to look into a ‘bridging loan’, which acts as a bridge between buying a new home and selling your existing one. It’s a temporary way of paying for your new house while your existing one sits for sale. Here’s more on bridging finance.

Can debt affect my mortgage application?

One of the most important things that mortgage lenders look at is how much income you have free in order to make loan repayments. With too much debt, a lot of your income is already committed to other loans, and there’s only so much to go around. Even if you’re not using all of your credit limit, it’s important to know that the lender will assess you as if you are. They will also look at your credit history, and how well you’ve repaid other loans. In the end the lender may decide to lend you less, or nothing at all. Here’s more on how much of a mortgage you could get when buying a home. 

Will my student loan count against my mortgage application?

Because your student loan repayments are 12% of every dollar you earn above $20,020, that obviously affects how much money you have available to repay a mortgage. Having a student loan makes a mortgage less affordable and can affect mortgage applications. Here are other criteria that affect your ability to borrow.

Can I invest in property without buying a house?

If you’re feeling left out because you haven’t bought your home, or buying a property seems out of reach, there are ways to invest in property without buying one. For example, there are managed funds, exchange-traded funds (ETFs) and real estate investment trusts (REITs), which are pools of investor money that share in the profits from property. There are advantages to these, including the ability to get your money back quickly.

Don’t know where to start?

Check out our 6 steps Get Sorted programme to get you on track.

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