First-home buyers' guide to getting a mortgage

The time is right for first-home buyers to strike – but how?
With house price rises tapering off in many parts of the country and the number of houses being sold dropping by up to 30 per cent, the conditions are better for would-be homeowners than they have been in years

There was $818 million in lending to first-home buyers in March and $630m in April, up from $561m in April 2015.  

"News of prices levelling out, and even falling in some places, is obviously good news for those who have struggled to get on the housing ladder, but it's important that buyers make sure they are properly prepared before they try and enter the market," said Jose George, general manager of research house Canstar.

"The obvious place for people to start is looking is at mortgage providers, the rates they offer and the services they provide."

According to Canstar's online comparison tables, the difference between the highest and lowest advertised two-year fixed rate home loan for first-home buyers with a 20 per cent deposit is 0.7 per cent.  In dollar terms, this could mean paying an extra $142 per month if servicing a $350,000 loan over a 25-year period.

"Rates are obviously very important, but first-home buyers should also look at what help is on offer.  There is a lot of support being offered by home loan providers and our advice is to take whatever you can get," George said.

Financial adviser Liz Koh said some first-home buyers would benefit from an offset facility – where savings can be offset against a loan balance to reduce the interest bill. This means they can still save money for a holiday or a new car, or just an emergency fund – but benefit from paying down their loan balance at the same time.

She said buyers should make sure the bank could help them set up their mortgage in the best way possible to pay it off quickly.

What online advice was available could also matter, she said. "Kiwibank and BNZ are probably in my opinion a bit more helpful in terms of giving information … it's not just interest rates, it's the whole support package you get from the bank. If you're paying a smidgen more on your interest rate by going to another bank but you can pay it off more quickly you'll save money in the long run."

Broker Glen McLeod, of Edge Mortgages, said for many first-home buyers, it was a question of who could offer them a loan.

"It comes down to where their deposit is, what it is made up of, then you look at what you are able to do with that."

He said someone with a 10 per cent deposit might need to go through a Welcome Home Loan.

They could take their chances with finding a bank that had space within its "speed limit" to allow a low-deposit loan through. But banks are becoming more reluctant to use the 10 per cent leeway they have for loans with deposits smaller than 20 per cent.

He said borrowers should also be prepared to pay a higher interest rate if they had less than a 20 per cent deposit.

Koh said it was worth reading the fine print.

"It's also important to look at the credit rating of the bank. If it's a lower [interest rate on offer] it's probably a bank with a higher credit rating, but you don't want to get caught in a situation where the bank has its funds frozen overnight. I'm always amazed how many people don't know what the credit rating of their bank is."

TIPS FOR WOULD-BE BUYERS
Gather evidence of income and outgoings. Lenders can offer a lot more support and, in some cases, a better deal if they have a clear picture of your financial position. If you plan to use your KiwiSaver, you will need to provide statements for that too.

Know your budget. This might sound like an obvious one, but it's easy to use an online calculator and get carried away about what you can afford. You might not be paying rent in the future, but on top of your mortgage repayments, you will need to pay for utilities and insurance. Day-to-day costs like food and travel also need to be included.

Research the market and the area where you are looking for a property. Is the area at risk of flooding? Is there future development planned in the area? Commute to work? Schools? Shops? 

Do your homework on the house. This should include (but not be limited to) title searches and builders' reports.
You'll need legal representation. Usually not until you sign contracts, but it is an expense to keep in mind.

From Stuff.co.nz