6 WAYS TO GET A HOME LOAN DEPOSIT
May 07, 2020 at 5:00 PM
For several years,100% home Loans have been a thing of the past and most would say that it would be highly unlikely to return. That means you have to put some "skin in the game" or "hurt money" or to put it nicely some "financial commitment" to the purchase of your home.
What is a deposit?
A deposit is the difference between what the bank will loan you and the purchase price.
So for example, some banks can provide a home loan of upto 95% of the purchase price, leaving you to come up with the 5%.
It must be noted, due to the heightened risks involved with low deposit lending, the banks have stricter lending criteria than a borrower who would contribute 20% or more to the purchase.
What are the ways I can get a deposit?
One of the most common ways to obtain a deposit is with your KiwiSaver provided you are eligible.
Here are some of the eligibility requirements:
- You must intend to live in the property. It cannot be used to buy an investment property.
- At least $1,000 must remain in your KiwiSaver account.
- You have been a member of KiwiSaver for at least three years.
To check you qualify, simply contact your KiwiSaver provider to apply and confirm whether you can withdraw.
If you are a Previous Home Owner, you must first apply to Kāinga Ora who will determine whether you qualify to withdraw. A letter will be provided from Kāinga Ora which will then accompany your application to your KiwiSaver provider.
All banks will accept KiwiSaver to cover your full deposit. Please bear in mind that the more you contribute the less interest you will pay. If you have other sources that can be used as well, it will then reduce what you need to borrow.
2. First Home Grant
If you're a first-time home buyer, or a previous home owner and you've been making regular KiwiSaver contributions for 3 - 5 years, you may be eligible for a First Home Grant of up to $5,000 for an existing home.
What can I get?
- If you buy an existing home, you can get $1,000 for each of the 3 (or more) years you've paid into the scheme. The most you can get is $5,000 for 5 or more years.
- If you buy a new home or land to build on, you can get $2,000 for each of the 3 (or more) years you've paid into the scheme. The most you can get is $10,000 for 5 or more years.
Apply for the grant through Kāinga Ora - Homes and Communities
In most cases the First Home Grant is not enough to cover the full deposit on it's own, so you will need other sources such as KiwiSaver, Cash, Savings etc..
A gift is exactly what it means, it is a non-repayable advance in the form of cash from a close family member. Generally banks require a statutory declaration to confirm it is non repayable, who it is from and what is the relationship. They also may want evidence the funds exist or require the gifted funds in your account prior to final approval.
Some banks will not accept a gift to cover the full deposit. As I have said above, you may need to put some "skin in the game". They may still require you to contribute towards the purchase in the form of genuine savings such as KiwiSaver, cash, etc..as well as the gift.
Pretty self explanatory. Basically savings held in your account evidenced by at least 3+ months bank statements. The banks want to see the statements so they can confirm it has been regularly saved and not gifted or borrowed.
All banks will accept cash to cover your full deposit. Please bear in mind that the more you contribute the less interest you will pay. If you have other sources that can be used as well, it will reduce what you need to borrow.
5. Sale of an Asset
If you have an asset that you wish to sell like a property, caravan, vehicle, boat, shares, etc...then the bank can accept this as a form of deposit. The bank will want to evidence the sale, before final approval is given and see this reflected in your bank statement or a sale and purchase agreement if it is a property.
In most cases the sale of an asset may not be enough to cover the full deposit on it's own, so you will need other sources such as KiwiSaver, Cash, Savings, Gift, etc.
A guarantor is someone (preferably a close family member) who is willing to offer sufficient equity in their property to guarantee your home loan. A guarantor is generally offering additional security as well as the property you want to purchase. It is not for the purposes of using additional income to help borrow more money.
There are banks that allow the use of guarantors however due to the added risks for you, the guarantor and the bank, there are a number of additional criteria and/or condtions in place for this type of application.
Often banks will still want some "hurt money" from you if you require a guarantor so you may also need to contribute towards the purchase through other sources i.e KiwiSaver, Savings etc..
Guarantors should be aware of;
- Affordability - the bank will run an affordability test to ensure the guarantor can repay the loan guaranteed if you are unable to. If they cannot then the loan application may not be approved.
- Cost - the guarantor will have solictor costs to meet as a the guarantee will need to be signed and witnessed in front of a solicitor. The solicitor will provide legal advice, ensuring the guarantor understands the risks of being a guarantor.
- Personal Guarantee - banks will often ask for an unlimited guarantee from the guarantor. This would mean that the guarantor will be liable for all your home lending.
- Mortgagee/ Default - If your home loan is seriously in default and the only way is to sell a property to repay the debt. The bank could choose to sell your parents home instead of your home. Or note, that if your guarantors loan default then this could place your property at risk too!
- Switching Banks - The guarantor may have to switch banks if the bank they have their home loan with does not support your application. If you need a guarantor then the bank that is willing to approve your application must take security over the guarantors property which means they take the guarantors home loan too.
I recommend that the first 5 ways are explored and exhausted before investigating this option.