How much deposit do I need?
The value of your deposit has a large role to play with regards to how much the bank can approve for your purchase of property. Whether it being a brand-new home, family home or investment property the rules are all different. There are a few common misconceptions around this subject so let’s break these myths down.
To avoid confusion, a 20% deposit is interchangeable with an 80% LVR (Loan to Value Ratio). In a similar way a 10% deposit has a 90% LVR.
You need a 20% deposit to buy your family home.
The Loan to Value restrictions do state you need a 20% deposit (80% LVR), however, the banks are allowed to exceed 80% LVR for a small portion of all owner-occupied loans. Depending on the type of dwelling and whether the bank has any capacity itself at the current moment you could buy from as little as 5%.
Que in the Low Equity Margin/Premium.
When you take out a loan with less than 20% deposit your mortgage rate ends up higher as the bank will charge a Low Equity Margin on top of the standard mortgage rates. The Lower the deposit, the higher the interest rate.
Some lenders don’t charge a Margin, but instead, ask for a one-off ‘Premium’. For those with low deposit, these lenders make a far better choice.
What about Welcome Home Loans?
If you meet the select criteria, Welcome Home Loans request you to pay a Lender’s Mortgage Insurance which is a one-off fee. This isn’t too different to what banks can already do so don’t get downbeat by the eligibility criteria.
I have more than 20% deposit, the bank should have no problem with lending me the rest.
I hear this far too often, so would like to take the opportunity to address this point. Your deposit is only one part of a mortgage assessment. Your ability to repay your loan based on the bank’s calculation and how you’ve managed your account and credit so far have a critical role to play.
The bank calculators on the bank’s respective websites are unfortunately incredibly inaccurate so we recommend you review your circumstances with us in detail to prepare a strategy on how to approach your mortgage.
I live in Auckland, how is getting a deposit even realistic?
We’ll only address the deposit part of the question and assume a target of 10% on a first quartile price of $669,000. Therefore, the target is a minimum $66,900 deposit.
Doing this on your own is no easy task, however, as a couple that burden is shared to $33,450 each. Assuming a balance of $20,000 in KiwiSaver after a few years of work and $13,450 saved up in the bank. The more time that’s been given to saving a deposit the easier the burden becomes. We strongly recommend organizing your KiwiSaver strategy to guarantee a level of success.
We also frequently see parents helping their kids with their deposit. There are a number of ways parents can help, whether it be a guarantee, deed of acknowledgement of debt or gift.
Regardless of this, normal lending criteria still apply and banks want to see a good savings history. In general, it’s best to approach parental assistance as a back-up or temporary strategy.
Speak to us today about putting together a tailor-made strategy to get into your first home.
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