OneRoof first home buyer's guide: How to save for a house deposit
(PART ONE) If you’ve decided to buy your first home, you’ll need to save for a deposit and the sooner you start the better. Here are some practical tips to help you start saving.
Work out how much you need to save
To set your savings target for the deposit, work out approximately what you expect your first home to cost at the time when you’re ready to buy. With that figure you can work out how much your 5%, 10% or 20% deposit will be in dollar terms.
If your first home is likely to cost $600,000, a 5% deposit is $30,000, a 10% deposit is $60,000, and 20% is $120,000. For an $800,000 house, that’s $40,000, $80,000 and $160,000. You’ll probably need another $5000 to $10,000 for your purchase and moving costs. Start by searching OneRoof to get an idea of how much you’ll pay for a home in your criteria.
How long will it take?
How long it will take you to save for a deposit on your first home will depend on:
• What the home will cost
• How much deposit you will need, and
• How much disposable income you have to save after necessities are paid for.
With a brand-new home, the deposit is usually 10%. Those who qualify for schemes such as Kaˉinga Ora’s First Home Grant it could be 5% if you meet certain income and property price thresholds. With First Home Partner, the deposit will vary according to how much a participating lender is willing to lend to you and the percentage contribution Kaˉinga Ora will make towards purchasing the home with you.
Once you know how much deposit you need, divide that by the sum you plan to save weekly or monthly, and from this you can work out how many years it will take to get your deposit together.
If you can, saving more than the minimum deposit makes sense. With a higher deposit, you will sometimes get a lower interest rate. Also, because you’re borrowing less, your regular interest payments will be lower. They’re calculated on the outstanding mortgage balance.
Using KiwiSaver
The very best place to keep your first-home savings is in KiwiSaver because of the benefits for first- home buyers. You’ll need to save for at least three years in KiwiSaver before you can use it to buy your first home. To get the most out of KiwiSaver you need to save for five years or more.
All KiwiSavers receive a government contribution of up to $521.43 each year on the first $1042.86 saved. If you’re employed, you should also receive a contribution from your employer equal to 3% of your gross income. Another advantage of saving for a home loan with KiwiSaver is you can’t be tempted to dip into your savings.
After three years you can withdraw all of your savings, except for $1000, to buy your first home. Savers who qualify can also get a First Home Grant of up to $5000 per person for an existing home, or $10,000 for a brandnew home. That’s doubled if two people such as a couple are buying together.
Tools to help you save
All the banks have mortgage calculators, which give you an indication of how much your mortgage will cost each fortnight or month. Sorted.org.nz also has a mortgage calculator. Some banks have goal planners.
The banks may be able to split your pay into various accounts as it comes in, which makes saving easier.
How to create a budget
Budgeting is essential for anyone who is serious about saving for a first home. It will help you prioritise spending in order to reach your goal faster.
First, download your bank account, credit card and loan statements for the past three months and then categorise the spending under headings such as: food, utilities, rent, giving, saving, and fun money.
Next, compare your expenses with your earnings.
If you are spending more than you earn: you will need to cut costs.
If you break even each month: you may have enough income to cover mortgage repayments.
If you have a surplus income each month: this is a good place to be, but you might still need to reduce your outgoings to reach your savings goal.
Budget apps and spreadsheets are available on the Internet. Sorted has a simple budgeting tool. Most banks also have tools to help you budget.
There are many budget apps on GooglePlay and the App Store. Make sure the one you choose works for New Zealand. Some budgeting apps such as Booster’s mybudgetpal (free) and PocketSmith (paid) download your bank transactions automatically, which makes budgeting quicker.