Recent changes in banking regulations have made it harder for people in their late twenties or early thirties to buy their own homes. While the new lending restrictions have an impact on investors and first home owners, there are strategies you could use to gather sufficient funds to make a deposit.
Finding New Ways to Own Your Home
If you don’t have enough money to make a deposit and own a home in the suburb of your choice, you could consider making a joint purchase together with your siblings or close friends. If that doesn’t work out, your parents could help you make the minimum deposit by either legally loaning you the deposit amount, acting as guarantors, or refinancing their own mortgage and giving you a top-up from their own loan. There are both pros and cons attached to these options so it is important to learn more about them.
Parents Acting as Guarantors
As a guarantor, your parents can secure the loan against their own property. So instead of making the required 20% or 30% deposit, they give your bank a 20% or 30% guarantee secured by their mortgage. If your parents ever plan to sell their home, that guarantee can be transferred to a different property or part of the proceeds of the sale could be used to create a term deposit – this would then work as security for your loan.
If the mortgage is managed well, parents could be removed as guarantors in as little as 3 years. Becoming a guarantor does come with its own risks, though. Depending on the terms and conditions of the contract, parents might have to end up paying the entire amount borrowed by their kids. This does happen and at iLender we recommend this method of purchasing only as a last resort.
Parents Give You a Gift Certificate
If your parents don’t want to become guarantors for fear of losing their home, they can either gift you the deposit, or an interest-free loan. If you receive an interest-free loan from your parents, your document should state that it is a gift with no interest owing and no requirement for repayment. This method is much safer than parents going as guarantor as the full risk is the deposit only with no legal link between the parents property and your own.
Depending on the location of your property in New Zealand, plus whether or not it is owner occupied or an investment, you will have to make a 15%, 20% or 30% deposit to get a home loan approved by the Bank. Banks would like to see you save at least 5% of the deposit amount on your own (Kiwisaver is accepted as savings), with the remaining money to make up the minimum deposit borrowed from friends/family. Non Bank lenders generally do not insist on any genuine savings and so make the approval process easier.
Getting Help from an iLender Mortgage Broker
Whether or not your parents can help you with your mortgage, consider using a mortgage broker to get a low deposit home loan. Mortgage brokers like iLender have several exclusive financial products specifically tailored for self-employed individuals, people with bad credit history and those who have no proof of income. So if the bank has declined your loan application, get in touch with us to get a first home mortgage. We also offer second mortgages and short term finance to help you with your property investment in NZ.
Since we’re completely independent of banks and other lending institutions, we give you unbiased advice on your financial situation. To learn more about our services, give us a call on 0800 536 337 or visit us online to see what we have to offer. Overseas callers dial +64 9 428 5338.