Let’s accept that buying your own home isn’t going to necessarily be easy, but it’s something that most Kiwi’s aspire to.
There are a lot of benefits when you own your own home, and one of the best things is the feeling of control and knowing that you are not going to be asked to move when the landlord decides to sell or shift into the house.
It’s nice to know that you have a place to call “home” for as long as you want.
Of course that sounds great, but sometimes buying your own home can seem out of reach.
But are you really trying as hard as you could?
How Much Do You Want Your Own Home?
There are not many things in life that are easy … and sometimes the best things need an extra effort.
The key is really to determine where that effort needs to be focused.
For first home buyers there can be a list of things that you can do to improve your chances of getting your own home and they all involve money.
- How much money you have ... the deposit
- How much money you earn … your income
- How much money is available to be used to pay a mortgage … your surplus income
- How good have you been at managing your money … your credit score
Any bank or non-bank lender will look at all of these things and while today some of these may not be ideal, the good news is you can work to improve all of these.
For most first home buyers there will be one or two of these areas that may need work, but sometimes it may be all of these.
That may be what you need to do if you really want your own home.
Look At The Deposit
Most people will have an idea of how much deposit is needed, but it’s worth checking to see what is really needed as it may be less than you think.
Often the banks will tell you that you need 20% deposit, but there are options for as low as 5% and while those options can be more expensive they at least get you on the property ladder before house prices are out of reach.
Most people that buy their first home wish they had done it earlier than they had.
So when you are looking at how much you have for a deposit you need to consider everything.
How much do you have in your KiwiSaver and can you withdraw this for your first home? Contact your KiwiSaver provider and ask then how much you can withdraw today. Even if it is not enough yet, at least you will know how much you can access.
Can you get the First Home Grant? Again, check if you are eligible and put an application in. They can only say yes or no and it is best to know if this is an option for you. You can do an application online HERE to see for yourself.
What savings do you have? It’s always good to have some savings and it’s never too late to start. If you are not a good saver then you may want to increase your KiwiSaver contributions so you cannot touch the money, or if you are a good saver then it’s a good idea to set up a separate account for the house. A good habit is to start putting away enough to cover the mortgage (less your existing rent) as this shows any lender that you really can afford the repayments and they can see this on your bank statements when you apply.
What else can you do to increase your deposit? For starters most of us have “stuff” that we don’t need so it would be worth considering selling these things on Trade Me and putting any money into your savings.
What About Your Income
Most people that are on a salary or wage believe that what they earn is all they can earn until they get their next pay rise; however almost everyone does have the chance to earn more money if they are prepared to put in some extra effort.
If you can earn more money it is going to help with your deposit and maybe clear up some debts that you may have, but if you have a regular income that you can prove then it also helps with the finance application as the extra money means you can afford a larger mortgage.
If you really do want to buy your own home then it would be a good idea to look at ways to earn extra money.
If you are able to get extra hours or a pay increase with your employer then that is probably the easiest option to show a bank; however most of the time this is not going to be possible and even if you can get a pay rise it may be quite small.
Most people therefore look at other ways to make extra money … they refer to this as a “side hustle” and there are plenty of options out there. Some of them are not ideal or need specialist skills, but it’s worth having a look around to see what might suit and there are some Facebook pages that have some options reviewed like Start a Side Hustle which is one of the better ones.
Some of the most popular are rideshare driving, a part-time cleaning job, hospitality work, selling on Trade Me or online things like doing App reviews or affiliate marketing.
Any extra money is going to help in so many ways.
How Much Surplus Money Do You Have?
When we are talking about surplus money we are meaning what is left from your income once you have paid your living cost and expenses. This is what the lenders look at to determine what you can afford to borrow.
To increase your surplus you either need to increase the income or reduce the living costs and expenses.
We have already talked about increasing your income, and we now know that it is possible.
So next you need to look at your living costs and expenses.
Living costs are harder to reduce as we all need to live, but most of us also waste money on things that we really don’t need. There are the coffees and lunches that you can cut back on, or it may be a few “extras” that end up in the shopping basket.
Expenses are easier to cut costs on.
Start by having a look at any debts that you have and see if you can get rid of some quickly or wrap them up into a cheaper loan. As mortgage advisers we do these types of debt consolidation loans all the time to help people prepare themselves for home ownership.
Reduce limits on credit cards and get rid of any that you don’t need. You should also pay off and cancel any overdraft limit on your bank accounts as your really shouldn’t need these. Of course the banks love you to have credit cards and overdrafts as they make good money from you with these, but when it comes to getting a mortgage for your first home these do restrict what you can borrow.
There are other expenses that should be reviewed too and some of the easiest to target first are subscriptions and insurances. It is always amazing how many subscriptions end up on the credit card and paid from the bank accounts. These can get out of control and we now call this subscription creep as it really does “creep” up on you without you really noticing.
Insurance premiums are similar… most policies are designed to increase each year and because most people do not review the insurances often or know how to review the policies it’s often just left. You should review these with an insurance adviser to make sure that you know what you are paying for, know they you have the best policy options, the best prices and have a person to assist with any claims. Contact Roharn Smith who is one of the most competent insurance advisers around.
Do You Know Your Credit Score?
Your credit score is based on your credit history and is affected by a number of factors including how many credit applications you have had, your history of paying bills on time and also paying any debts and loans.
You can still get a mortgage with bad credit, but obviously good credit is preferred.
Its always a good idea to get a credit report as this is what the lenders will look at, and it’s best to know what is showing so you can address any issues before the lenders ask. Having a look now also gives you an idea of what it is like and if you then manage your money better you can improve the credit score over time as you get ready to buy your home.
Bank account conduct is also a consideration and banks do look at this when assessing your mortgage application.
Now you may know that you need to make some changes to help your chances of buying a home sooner.
You should also know that there are things that you can do to help yourself.
So the next thing to do is change something … make a change to get you in a better position for buying your first home.
You will never regret it.