How Do I Get a Home Loan Deposit?
February 12, 2024 at 10:00 AM
WHAT IS A HOME LOAN DEPOSIT?
A deposit is what you have to put (contribute) towards the purchase of your home. The rest will be made up by the bank or lender.
Here is an example....You want to purchase a house for $500,000. You have $100,000 to put towards it and you have ideally through your broker, have been pre-approved $400,000 to complete the purchase.
Bank Deposit vs Purchase/ Real Estate Agent Deposit
When you make an offer on a house to buy, the agent or home owner typically asks for a deposit, generally this is 10% of the purchase price. This is different to the "deposit" required by the bank/ lender. The 10% deposit is paid when the sale goes unconditional. Keep in mind that The Kainga Ora Home Start Grant cannot be used to pay this deposit as the funds will not be received until settlement day. You will need to find alternative funds to cover this - talk to us more about this before making an offer!! Good real estate agents would recognise this and you may negotiate a lower deposit amount.
WHAT IS ACCEPTED AS A DEPOSIT?
1. KiwiSaver (For first home buyers/ second chance applicants only)
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 deposit. You can also combine your Kiwisaver and the below sources.
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 3years or more, you may be eligible for a First Home Grant of up to $5,000 for an existing home.
What can I get?
- For the purchase of an existing home, the grant offers a minimum of $3000, and up to a maximum of $5,000 to individuals and $10,000 to couples.
- In the case of building or purchasing a brand new home, this doubles to a minimum of $6000, and a maximum of up to $10,000 for individuals and $20,000 for couples.
Apply for the grant through Kāinga Ora - Homes and Communities
3. Gift
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.
4. Cash
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.
6. Guarantor
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.
FINALLY! Talk to us for advice to ensure there are no issues on unconditional or settlement date!