How to get a first home loan in NZ with less than 20 per cent deposit
Hitting a hurdle with your first home loan deposit? Sounds like you might need a boost - or another route! These are your options if it feels like that magic 20 per cent is constantly out of reach. We break it down below.
In this article
- Why you need a 20 per cent deposit
- How to boost your current savings to 20 per cent
- How to get a first home loan with 10 per cent deposit
- How to get a first home loan with a 5 per cent deposit
- How to get a first home loan with no deposit
WHY DO I NEED 20 PER CENT FOR MY FIRST HOME LOAN DEPOSIT?
A quick recap on the importance of that ‘magic 20 per cent’: The big banks are regulated by the Reserve Bank of New Zealand. They make it so banks can only provide low-deposit loans to a small number of new borrowers (that’s you!) without incurring some penalties.
In other words, it costs the banks more to provide low-deposit loans, so they avoid it as much as possible. If you’re curious, you can read more about the rules (‘loan-to-value ratios’) on the Reserve Bank site.
As house prices in New Zealand have continued to grow and a 20 per cent deposit continues to stay out of reach for lots of first home buyers, the number of options for those with a low deposit have grown too.
Let’s take a closer look.
OPTION ONE: TRY TO GET UP TO 20 PER CENT
If you’re close to 20 per cent, you should first look at how you can get your deposit up to 20 per cent. A higher deposit makes lenders far more likely to say yes, and you’ll avoid paying extra fees and interest in the long run too.
There are 3 popular ways to boost whatever savings you already have:
- Applying for the First Home Grant from Kāinga Ora.
- Draw down on your KiwiSaver.
- Get a loan or gift from family.
However, not all of these options are available (or won’t provide enough) to get you up to that magical 20 per cent. If that’s the case for you, there are other options.
OPTION TWO: 10 PER CENT FIRST HOME LOAN DEPOSITS
While loans with less than 20 per cent deposit are harder to get from lenders, that doesn’t mean you won’t get them at all. If you are in a strong financial position, have a great repayment history (more about than in our guide to credit scores) and aren’t buying a risky property like an apartment or a home in the countryside, your lender may be able to help you out with only 10 per cent as your deposit.
One important thing to know if you do go down this route, however, is that you’ll be expected to pay lender’s mortgage insurance on any home loan with less than 20 per cent deposit. This is an extra fee, usually 1% on top of your regular interest. That can add up over time, so make sure you refinance as soon as possible once you hit 20 per cent equity in your home to avoid paying more than you need to.
OPTION THREE: 5 PER CENT FIRST HOME LOAN DEPOSITS
The First Home Loan scheme offered by Kāinga Ora could get you into your first home with as little as 5 per cent as a deposit. There are some stringent requirements that limit who can get these loans, however, so you have to make sure you qualify.
At the time of writing, to qualify for a 5 per cent deposit through Kāinga Ora, you must:
- Only earn up to $85,000 a year before tax for a single person, or up to $130,000 for 2 or more people.
- Buy a home below the regional house price cap for your chosen area.
- Be buying your first home (or be in a financial position similar to a first home buyer)
- Meet the lending criteria of the bank you get the loan through.
There are some other criteria you must meet as well. For more information, we recommend you visit the dedicated Kāinga Ora First Home Loan site.
OPTION FOUR: NO FIRST HOME LOAN DEPOSIT
If you have no deposit saved up, it might seem impossible to get your first home loan. But don’t give up yet! There are three main methods still open to you:
1. If you qualify for the First Home Grant offered by Kāinga Ora, you can use that grant as your deposit for the First Home Loan too.
For example, if you and your partner both qualify for the First Home Grant and decide to buy a new home, you could be granted $20,000 to use as part of your deposit. At the time of writing, that’s enough of a deposit to buy a starter home in Northland, Manawatu, Wanganui, Taranaki, Canterbury, Otago or Southland.
2. If you have the right to occupy multiple-owned Māori land, you may be eligible for a Kāinga Whenua loan. This loan can be used to buy or build a home on that land without a deposit, assuming the total costs are less than $200,000.
There are some additional requirements beyond the right to occupy, which you can read more about on the dedicated Kāinga Whenua loan information page.
3. If you have a family member who already owns their own home or has paid off most of their own mortgage, they can act as a guarantor for your loan.
This means that they use the value of their own home as your deposit. This can be tricky, as it means that if you start missing repayments on your first home loan, the guarantor needs to pay them instead, or else they might lose their home. It requires a lot of trust, and lenders will expect evidence of a strong financial history of the guarantor too.
One last piece of advice: don’t rely purely on the banks if you don’t have a full 20 per cent deposit for your first home loan. Non-bank lenders (like us) may be able to help you out if the bank says no. Make sure to ask your local mortgage broker to ensure that you’re getting the full range of offers available for your first mortgage. Good luck, and happy hunting!
If your credit score is stopping you from getting your first home loan, it can feel like you’ll never find a place of your own in New Zealand. But there