Years ago the legendary Kishore Kumar sang “Chhota sa ghar hoga, Badalon ki chawon may, asha diwani mann may bansuri bajaye” in a film called Naukri (1954). The song is a fine example of the dream of the common man and what a ‘ghar’ embodies. Home after all is always “Home sweet home”. While a roof over one’s head has always been man’s dream, in today’s context it is as much aspirational as it is something that can be achieved with a focused approach, self-discipline and proper guidance.
What follows below is written keeping in mind the New Zealand market.
DEPOSIT
This is the first step toward achieving your dream of owning your own home.
There are several ways you can put together the deposit required to buy your own home.
SAVINGS
Saving your way into a deposit is the traditional way, and this is where your self-discipline comes into play. The ability to save regularly over a period of time demonstrates your commitment to your goal. The bank can clearly see the regularity of your savings and it reflects on your financial discipline. The more you save, the better it is for you when it comes to borrowing for your home. “No pain, No gain” is an old adage that holds particularly true in the home buying context.
GIFTING
In New Zealand, It is quite common for a parent or family member to gift the amount or part of the amount required for a deposit. However, lenders usually want to see an ability to save. In most cases a five percent ‘own savings’ is required.
SUPPORT for FIRST HOME BUYERS
This is something typically Kiwi. There are three main schemes that are available if you’re a first home buyer:
Welcome Home Loan – This comes in handy if you don’t have the 20% deposit. This is offered in conjunction with Housing New Zealand
Kiwisaver withdrawal - If you have been a Kiwisaver member for three years or more, you may be able to put some of your KiwiSaver savings towards your first home. This is subject to approval by the Kiwisaver provider.
KiwiSaver Homestart grant- As a first home buyer, you may be able to get a grant towards your first home. This grant is provided by Housing New Zealand and could be upto five thousand dollars per person if you are buying an existing property or upto ten thousand dollars if buying a new land and building package.
COSTS of BUYING A HOME
While the deposit forms the largest chunk of the property purchase cost, there are other costs that a home buyer has to bear.
Valuation: A valuation by a registered valuer is usually a condition for high LVR (Loan to Value Ratio) lending. In simple terms if you are borrowing more than 80% of the value of the property then a valuation report is mandatory.
Builders report: You may want to get the house checked by a professional building inspector before you proceed with the purchase. This is for your own peace of mind that you are not buying a lemon.
Solicitor’s Fees: The solicitor advises you while buying property. They do all the legal paperwork involved and for their services including conveyancing they charge a fee.
Lender’s Fees: Most lenders have a loan application fee or a setup fee. This may be waived on a case by case basis. This fee is usually added to the loan.
Land Information Memorandum (LIM): A LIM report is an important document as it will tell you what the council knows about the property. Your solicitor will need to see this and highlight any clarifications to be sought or concerns to be raised with the Council.
Lender’s Mortgage Insurance: Lender’s Mortgage Insurance (LMI) is an insurance policy that protects the lender (the financial institution) from financial loss in the event that the borrower (you) can’t afford to keep up the home loan repayments. Your financial institution may make it a condition of borrowing that you pay for their lenders’ mortgage insurance policy. This is usually because you are a first home buyer and/or you have a small deposit – your Loan to Value Ratio (LVR) is high. You can pay this as a lump sum or you may be able to add this to your loan.
Moving Costs: These are costs associated with moving into your new home.
COSTS of HOME OWNERSHIP
In the excitement of buying their own home many people don’t realise that over and above the initial costs associated with the purchase of a home there are some regular costs to home ownership.
Council Rates: These are levied by the Council for services they provide.
House Insurance: You need to insure your home from the day you become the owner in order to be able to deal with the “What if” should something untoward like an earthquake happen and your property suffers damage.
Mortgage Protection Insurance: The house insurance protects the house should there be any damages due to an unforeseen event. It is also prudent to get Mortgage Protection Insurance to protect the repayments should something happen to you that impacts on your ability to earn and make regular loan repayments.
Body Corporate levy: If you buy an apartment or a unit you may need to pay a Body Corporate Levy. This could be monthly or annual.
Repairs and maintenance: Every now and again your property might need some regular maintenance and upkeep. Make sure you keep money aside for repairs and maintenance. Regular maintenance keeps costs down and improves the value of your home.
Disclaimer: This article is general in nature and should not be taken as personal financial advice. For personalised professional advice on Home Loans, Insurance and KiwiSaver call Rajesh Krishnamurthy (Fellow of Institute of Managers and Leaders NZ) on 022 09 MKART(65278)