What is a First Home Loan?
Most banks require a minimum of 20% deposit to purchase a home. However, with the rising cost of living, it can be challenging to gather such a large deposit.
To assist those with lower deposits, the government offers a First Home Loan, underwritten by Kāinga Ora. Only select lenders provide these loans.
Benefits of a First Home Loan
Typically, when purchasing a home with less than a 20% deposit, banks will apply a Low Equity Margin (LEM) on top of the current interest rate, which can range from 0.25% to 1.75% p.a.
However, with a First Home Loan, you won’t need to pay this additional LEM. Instead, you can access the same special pricing interest rates available to borrowers with higher deposits. Which reduces your overall loan repayment, helping you pay off your loan faster.
Am I eligible for a First Home Loan?
To qualify, you must meet the following criteria set by Kāinga Ora:
- Be over 18 years old
- Be a NZ citizen, permanent resident, resident visa holder.
- You are buying your first home, and it will be your primary place of residence. If you previously owned a home in NZ or overseas, you may still be eligible for a First Home Loan, however, the lender will complete an additional assessment.
- In the last 12 months, your before-tax income must be:
- $95,000 or less (individual borrower)
- $150,000 or less (two or more borrowers, with/without dependents)
- $50,000 or less (one borrower with one or more dependents)
Additional requirements include:
- Not owning any other property or land (excluding Maori land)
- Having a minimum 5% deposit on the property’s purchase price (including savings, grants, KiwiSaver first-home withdrawal and gifts).
- The property needs to be less than 1 hectare
- Pay a 0.5% Lender’s Mortgage Insurance (LMI) and loan application fee.
- Meet the bank’s lending criteria, which may be vary by bank. They’ll assess you based on your ability to repay the loan, your current debt levels and credit history.
How to Apply for a First Home Loan
- Get a Pre-Approval – If you’re just getting started, it’s important to speak with one of our mortgage advisers. They can help you understand how much you can borrow and recommend the right First Home Loan bank or lender for you. You’ll need to provide documents verifying your identity, income, expenses, and savings. Your adviser will then submit the application to the bank on your behalf and obtain a pre-approval so you can begin house hunting.
- Get a Final Approval – If you’ve already found the property you’d like to make an offer on, simply provide a copy of the Sale & Purchase Agreement to your Twine adviser. They will work with the bank or lender to validate the property, ensuring it meets their requirements. This step helps prevent situations where the lender may decline due to property issues like deferred maintenance or unconsented work.
Frequently Asked Questions about First Home Loan
Are there any costs to getting a First Home Loan?
There’s a 0.5% Lender’s Mortgage Insurance (LMI) premium and loan application fee. This is what Kainga Ora charges to insure each First Home Loan, which gets passed onto your preferred bank. Each bank charges its own interest rates and fees to cover the LMI.
What is the difference between Lender's Mortgage Insurance (LMI) versus a Mortgage Insurance?
A Lender’s Mortgage Insurance (LMI) is an insurance policy that protects the lender from any financial losses when the borrower is not able to make their loan repayments. LMI is a policy that covers the lender, not the borrower. In this case Kainga Ora charges 0.5% of the loan amount.
For example; if you borrow $500,000 the one-off 0.5% LMI would be $2,500. The LMI amount gets added to your loan amount ($502,500) and you pay this off over the life of your mortgage.
On the other hand, a mortgage protection insurance provides cover for your mortgage repayments if you fall sick, disabled, lose your job or pass away. This is an optional insurance cover.
Can I use First Home Loan to build a new home?
Building projects carry even greater risks, as they often run over time and budget, especially with the rising costs of materials and labor.
Before you spend any time and money into building plans, resource consents, or other preparatory steps, it’s crucial to consult with a mortgage adviser or your preferred First Home Loan lender. They will assess your financial situation to determine whether you can use a First Home Loan to build based on the lender’s criteria.
Which Bank or Lender offer First Home Loan?
The following bank/lender offer the First Home Loan, though each of them have their own lending criteria:
- Westpac Bank
- Kiwibank
- The Co-Operative Bank
- SBS Bank
- Unity
- Nelson Building Society
- NZHL
Do I really need to live in the house?
The First Home Loan is a grant to purchase an owner-occupied home, not an investment property and the government is pretty strict on that.
It is however, okay to rent the rooms in your house to flatmates as long as you also live in the house.
Can I use my KiwiSaver to purchase a home with First Home Loan?
Yes, you can withdraw your KiwiSaver to purchase a home using First Home Loan. As long as you have been contributing to your KiwiSaver fund for at least 3 years.
