How much of a deposit do I need to get a mortgage?
Buying a home involves a pretty big financial challenge: saving for a deposit. As the New Zealand housing market continues to evolve, it's important to understand the realistic expectations for how much you’ll need to save to secure a mortgage and get into your dream home.
Understanding the Lending Landscape:
The first step in determining how much you need to save for a deposit is to familiarise yourself with the lending landscape in New Zealand. Banks and lending institutions typically require a minimum deposit, which is a percentage of the total property value. The minimum deposit is subject to change at any given time, so it's crucial to stay up-to-date with the latest lending requirements.
The Loan-to-Value Ratio (LVR):
In recent years, the Reserve Bank of New Zealand has implemented various lending restrictions to promote financial stability and curb excessive risk-taking. One such measure is the Loan-to-Value Ratio (LVR), which sets limits on the amount banks can lend based on the property's value and the buyer's deposit. These restrictions vary based on property types and the buyer's circumstances.
Minimum Deposit Requirements:
Currently, the minimum deposit requirement for most owner-occupied properties in New Zealand is 20% of the property value. However, it's important to note that different rules may apply to certain property types or specific geographic areas. Additionally, if you're a first-time buyer, you might be eligible for government support schemes, such as the HomeStart Grant or the KiwiSaver HomeStart Withdrawal, which can help boost your deposit.
However the Reserve bank has eased up on this and there are now options for people with less than a 20% deposit - but that's why it’s important to speak to a mortgage advisor as soon as possible to see what options are best suited to your financial situation. Again, this can change at any given time.
The Realistic Savings Goal:
Given the 20% minimum deposit requirement being preferred, let's consider an example to illustrate a realistic savings goal. Suppose you're looking to purchase a property valued at $600,000. In this case, your ideal deposit would be $120,000 (20% of $600,000). However, remember that saving for a deposit is only part of the equation, as you'll also need to consider additional costs like legal fees, building inspections, moving expenses and any up keep your new home needs.
Tailoring Your Savings Strategy:
Saving a significant sum of money can be challenging, but it's not impossible! Here are some tips to help you maximise your savings:
a) Create a budget: Analyse your income and expenses to identify areas where you can cut back and save more.
b) Set up a dedicated savings account: Establish a separate account for your home deposit and automate regular contributions.
c) Reduce unnecessary expenses: Evaluate your discretionary spending and find ways to reduce or eliminate non-essential expenses.
d) Explore additional income sources: Consider taking on a side gig or part-time job to boost your savings potential.
e) Seek professional advice: Consult with financial advisors or a mortgage advisor like myself who can offer personalised guidance based on your situation.
Saving for a deposit probably seems incredibly daunting, but with advice, a plan in place and dedicated execution, it is doable! I’d love to chat with you about your specific situation to see how we can make it happen for you!