Getting your money together: how much do you need?

Only some banks offer lending for a 5% deposit – it's not a guarantee, and depends on the type of house you’re buying, and your personal circumstances.

You must be a NZ citizen, permanent resident, or resident who has been in NZ for the last 12 months.

You must earn less than $95,000 over the last 12 months (not the last tax year), if you’re an individual, or less than $150,000 if you’re a couple. Even if you earn over that amount now, but have earnt less than that in the previous 12 months, that’s totally fine.

You have to have been in the same job for 12 months, or in the same industry for 2 years.

You’ll have to pay an additional 0.5% of the mortgage value, which is called a Lenders’ Mortgage Insurance fee. This is because the banks need extra protection as they’re lending you such a large percentage of the property value (95%). Make sure you factor this additional amount into your costs.

You’ll still get access to the ‘’special discounted rates’’ from the banks – just like someone with 20% would.

If you’re wanting to buy a new build, you’ll only need a 10% deposit.

When you have a 10% deposit, the bank has to lend you 90% of the property value.

There are some instances where a bank will lend 90% to you even if you’re buying an existing property. Banks are limited to the amount they can lend out at this ‘high LVR’ level, so there’s no guarantee, but it’s worth a try! They do also tend to reserve this ‘high LVR’ lending for first home buyers as well.

With 90% lending, there’s also no guaranteed cash back, and you’ll pay a higher interest rate. This is because you’re considered a bit more of a risk to the bank, usually 0.25 – 1% higher than someone with a 20% deposit.

You don’t have to pay Lenders’ Mortgage Insurance though.

This is the most common amount of deposit.

The higher the deposit, the better from the bank's perspective, as you’re considered ‘less risk’.

Having a 20% deposit opens the doors to better mortgage rates and higher cashbacks.

Some banks give cash back, which is anywhere between 0.5% – 0.9% of the value of the loan. For example, this could be anywhere between $2,500 – $4,500 cash back if you had a $500,000 loan.

Loan-to-Value Ratios (LVRs) are limits for the banks to ensure they don’t give you a loan too high compared to the value of the property, and, as a consequence, take on too much risk. In most situations, and for most banks, the LVR is 80%. This means banks can lend you up to 80% of the value of the property. Technically, there’s no LVR restriction for new builds. And for property investors (people with more than one home), the LVRs are higher, at 65% of the value, meaning you’ll need a 35% deposit.

Example 2 just shows how you would get a $87,500 deposit from both of your KiwiSaver contributions and cash savings, in order to purchase a $875,000 house with a 10% deposit.

If your investing goal is to one day own your own home, then it’s best to start putting aside money regularly and consistently – whether that's into your KiwiSaver or into an investment account – the sooner you can start, the better.

If you’re thinking about buying a new build or an existing house, there are slight differences in terms of when you need the deposit ready. And, if you have no idea yet, that’s ok too – there's plenty of time to figure that out.

The brilliant thing with new builds is that you only need a 10% deposit. You’ll need to pay at least 5% of the purchase price (deposit) to the developer when you go ‘unconditional’. You’ll then need to pay, usually, only another 5% deposit by settlement, which could be up to a year later.

Going unconditional, for those who don’t know, means the buyer and seller are legally obligated to complete sale and purchase of the property. It essentially means there’s no more backing out. The deal is done!

This is one of the perks of buying a new build, you might have up to 12 months before you have to pay for the remainder of the deposit. It gives you even more time to save those pennies! It’s worth noting that some developers might ask for 10% upfront, but, in other cases, they might not. Either is fine and normal.

Typically, you’ll need to pay 10% to the vendor's solicitor (a fancy word for the seller's lawyer) on going unconditional to essentially confirm you’ve bought the house. The balance, usually another 10%, will be paid on settlement, which can be anywhere from four weeks to six months later, so it doesn’t have to be ready right away. You must pay the rest at settlement, though, otherwise you could lose your initial 10% you have already paid.

More on the differences between buying a new build and an existing property later.

• If you’re using KiwiSaver, your solicitor will need to make sure they’ve applied for the withdrawal with enough time. This can take up to 10 working days for funds to be released and, sometimes, deposits need to be paid within two to three days of going unconditional.
• Do you need to give notice to withdraw your cash savings? If your money is in a term deposit, you may need to give the bank notice that you want to withdraw to avoid paying extra fees.
• Some banks only allow you to transfer a certain amount per day. Make sure you check with your bank so you can transfer it all in time.
• If you’re lucky enough to use ‘the bank of mum and dad’, have your parents had enough time to arrange the gifted funds? Bank transfers can take a few days (even more if over a public holiday!) so make sure you leave plenty of time.
• Buying at auction comes with a few more risks. If you go to an auction and win, you now own the property. There’s no backing out.

• Register your intention to bid with the agent if you’re actually serious.
• Get a valuation and builder’s report done on the property before you bid.
• Have approval from the bank for both a loan amount (this is called pre-approval) and security approval.
  • Security approval is when the bank confirms that they’re willing to lend against that particular property.
  • You send the sale & purchase agreement to the bank (they can see the purchase price and address etc.), so they’ll do their own due diligence on the property and the S&P. They’ll look for anything in the S&P that could be detrimental. For example, are there any known issues with the property, such as a faulty roof, that needs repairing? Will this be fixed before settlement? Will the purchaser be doing it and, therefore, reducing the purchase price, or will the vendor take care of it? Security approval is the bank saying they’ll lend against that property, so it has to be done, and it’s important.
  • We have an example of this recently where a friend of a friend was buying a place. She got approval for 90% lending, went unconditional on the purchase, then the bank saw the details of the property, which was an apartment. Apartments are typically max 80% LVR, meaning now she has to find another 10% deposit. Had she used an adviser, they would have been able to tell her, from the off, that she needed 20%, and that property wouldn't have been acceptable for her bank approval.
• You’ll need to pay the deposit straight away. So, if you’re using KiwiSaver funds you’ll need the seller to agree to let you pay this later as it could take two to three weeks for KiwiSaver funds to be released.
• If you win and can’t meet these conditions or requests, you could face a big fine.

While your deposit will make up the majority of the money you need to have available, this isn’t where the costs start and end. You shouldn’t be using every last dollar to your name on your house deposit.

You will need to have extra cash available for (all in NZD):

• Solicitor (lawyer) fees - approx $2,000 - $2,800
• Valuation and building report costs - approx $850 - $1,000 for each report
  • If you put an offer in for multiple houses, you will have. to get reports for each property.
• Moving in costs/furniture/renovations - endless 🙃
  • But approx $75 - $100 per hour for a removal truck and $1,000 - $5,000 for furniture and decorating.
  • If you're buying a new build, the furniture/decorating costs will be lower as they usually come fully equipped.
• Insurance
  • House insurance - approx $130 - $160 per month. This is compulsory and needs to be in place BEFORE settlement.
  • Contents insurance - approx $40 - $100 per month. This is voluntary but we advise you to definitely get it.
  • Personal insurance - approx $30 - $150 per month depending on the cover.
• Residence Association or Body corp fees - approx $1,500 - $3,000 yearly
  • These are fees you need to pay if you are buying an apartment or leasehold property. They cover cost for maintenance of common areas e.g. elevators, driveways etc
  • Tip: check that the body corp fees don't have a history of increasing by ridiculous amounts each year. Otherwise this could really hurt your paycheck.
• Rates - approx $250 - $350 per month depending on the city and suburb you buy in
  • These are fees paid to the Council which pay for rubbish collection, maintenance of parks in your area etc. There is no avoiding these costs.
• Cashback - this is money coming in 👏 - varies across bankes/how much deposit you have, but generally 0.7% of the loan amount or $2,000 - $5,000.
  • It's paid to you by the bank when you settle the loan and yours to do what you like with. Think of it as an incentive from the bank for you to choose them.
  • This is usually enough to cover your legal fees at least - yay!

GRAND TOTAL: $5,000 - $7,000 one-off upfront fees + approx $800 per month ongoing costs

The key thing to remember when getting your deposit together is to not leave things to the last minute. 

You’re dealing with multiple different people and companies e.g banks, lawyers, KiwiSaver etc. It can always take longer than you think to process things, and there can always be delays. You don’t want to miss out on your dream home because your deposit money didn’t arrive in time!