What are your Contribution Options for a Home Loan Deposit?

The general rule is that you're aiming for a deposit of 20% of the house value if possible. The bank will then lend to 80% of the property value which will make up your home loan. This is the basic rule for Loan to Value Ratio (LVR) that is used across the banks. 

There are some instances where 20% deposit is not necessary when applying for a home loan as long as you are able to service the loan in your financial position. 

The following situations may apply:

• Lending at high LVR - the lender may lend up to 90% if you have a smaller deposit but are able to service a larger loan. In the current market this would need to be submitted to the lender as a 'live deal' which is when you have had your offer accepted on a house, subject to finance, before applying for your approval with a lender.
• Apply through Kainga Ora First Home Loan Scheme - eligibility criteria applies.
• Second tier lenders can be another option to consider. However, please note interest rates are likely to be higher and other terms, conditions and fees may apply.

Please note the application is also calculated on your ability to service a loan based on your financial position not only your deposit funds. Your financial position will still dictate your loan size regardless if you have more than 20% deposit.

There are many ways of securing a house deposit other than just your savings. For example, you may be eligible for a first home grant worth up to $10,000.

• Personal Savings - Putting away a chunk of your income regularly not only takes you closer to a deposit, it also demonstrates to the bank that you have the commitment you’ll need for a home loan.
• Keep track of your spending
• Before you buy something, ask yourself ‘Do I really need this?’
• Automate your savings so your money is out of your account before you get a chance to spend it.

• Kiwisaver - You may be able to withdraw money from your Kiwisaver to buy your first house – you’ll need to fill out he paperwork with your provider and have the funds pre-approved for withdraw prior to offering on a house. If you don’t know what Kiwisaver provider you are with, you can call the Inland Revenue and they will be able to tell you. 

• First Home Grant - A first home grant can provide a lump sum of between $3000 and $10,000 to assist you into your first home. Eligible first home buyers can get up to $5000 each for an existing house or up to $10,000 each for a new build. To be eligible you’ll need to have been a member of Kiwisaver for at least three years and earn less than the maximum income levels. There are other criteria and house price caps that apply. Please note that regional house price caps will apply.

• Gifted Funds - Parents can gift you a sum of money that helps make up any shortfall with your deposit funds. The bank will require a gifted letter to be provided

• Guarantee's - Your family can provide a guarantee over your loan if you have little or no deposit. This allows them to use their equity without having to provide any money up front. However, if you fail to make a repayment your guarantor is then liable.

Our First Home Buyers guide also provides a thorough understanding on applying for your first home. You can download the guide by clicking the button below.

If you'd like to learn more about what you can do to prepare your loan deposit, feel free to get in touch.

Looking forward to hearing from you,

Fiona