It’s common knowledge that lenders require a 20% deposit, so that means you’ll typically need $100,000 for a $500,000 home. While there are things to help you along the way, such as using your KiwiSaver as a deposit or a Welcome Home Loan Scheme which means you only need a 10% deposit, there’s still compelling evidence that the bigger the deposit, the better.
The larger your deposit, the less interest you’ll end up paying over the lifetime of the loan. There will likely be less fees as there is less risk to the lender.
So how do you save for a deposit? Unfortunately, you need to budget. Luckily, it’s not as bad as it sounds. A budget should be realistic and take your lifestyle into account. Much like a super restrictive diet lasts for a while before you blow it on doughnuts and chips, a highly regulated budget leaves you feeling negative and limited in your options, which leads to over spending.
How to create a budget
Set aside some time to go through your spending. Write down all the big, known expenses, such as rent, power, internet, debt repayments such as hire purchase or credit card repayments and phone. These expenses will be about the same each month. Then you might need to go through your spending history for the last few months to see how much you’re spending on other things. Takeaways, groceries, entertainment, school fees and expenses, and everything else.
Most banks now allow you to export data to a spreadsheet, so it’s easy to sort transactions into categories. Although this isn’t always pleasant to do, it’s important so you can see where you’re spending your money. Based on these figures, you can see where you’re blowing out, and therefore where you can save money.
Once you see clearly where all your money is going, you can establish how much money you have left over at the end of every week. If you’re into the red each week, you need to look at your spending and understand why.
Set yourself goals how much you want to save- how quickly will that get you towards your goals of a 20% house deposit? Are there other things you can do to get you into your dream home faster?
Using your KiwiSaver as a house deposit is common. It’s a great way for first time house buyers to get into their own home faster, so they can start paying off their mortgage and not their landlords.
If you have had a KiwiSaver for at least three years, you may be eligible for a KiwiSaver HomeStart Grant. The government may contribute $5,000 towards and existing home or $10,000 towards a new build or land purchase. If you are buying with someone else who is eligible, you can combine these amounts, meaning you can get up to $20,000.
How to choose your new home
Your first home is unlikely to be your dream home. The suburb might not be perfect, the house itself might be small or a doer-upper, or it might be the worst house in a great suburb. That’s OK, and to be expected for most first home buyers.
You want to be able to afford the house, so aim to have a mortgage that you can pay off easily. You can always save more and pay off a chunk of mortgage when you next refinance/ fix a term.
Some things are important though; Is the home near to public transport and can you easily walk to the shops? Is the area becoming gentrified and increasing in value, or is it dropping? Also the type of home matters- apartments do not increase in value as much as a standalone home does.
Set money aside
Buying a home is expensive for more than just the mortgage. There’s moving costs, lawyers/ conveyance fees, builders reports, house insurance and LIMs. Always have a slush fund built into your savings amount and don’t borrow to your limit, as the buying process may cost you more than you anticipated.
If you save aggressively, you will get into your new home much faster, and pay much less interest over the course of the loan. It’s worth foregoing a few bottles of wine or takeaways to reap the benefits later on. So, when those boots are calling or you want a car upgrade, keep your eyes on the bigger target and enjoy watching your house deposit grown instead.