ONEROOF FIRST HOME BUYER’S GUIDE: Howtoset abudget for your first home

Ifyou want to buyyour first home, it is importantyou have arealistic budget from dayone. It’s the first step in working outhow much youcan affordand howmuchthe bank is likelytolendyou.A budgetalso helps youfocusonthe righthouses

Howmuchcan Iborrow?

Thefirststepinworking outhow much youcan affordand howmuchthe bank is likelytolendyou is to crunch the numbers to determinehow much you can affordtospend on ahome. This helps youfocusonthe righthouses in your pricerange.

Most banks have affordability calculators,which crunchyour income and spending to determine howmuch youcan comfortably payeachfortnight or month.

Most buyers need20% of the home’s purchase priceasadeposit inorder to borrow the rest as amortgage. With a brand-new home, the deposit is10%.If youqualify forschemes such as Kainga Ora’sFirst Home Loan andFirst Home Partner, it is possible to buywith a 5% depositprovidedyou meetcertain income and propertyprice thresholds.

To calculatehow much youhave fora deposit,add up howmuchyou have savedalreadyinKiwiSaver, other investments and in the bank.You may be able to borrow moneyfromthe bank of mumand dad, or,ifyou’re lucky, receivea gift thathelps you gathersufficientdeposittobuy

Once you’ve worked out howmuch deposit youhave,you will have an indicationofhow much youcan afford to payfor ahome. It is important to understandhow much homes are selling forinthe area youare interested in moving to.You can find saleprices forrecently sold houses,estimates based on sales in the area andalso use the OneRoofHouse PriceReport updated monthlyonOneRoof.co.nz.

Supplementing income to afford repayments

Howmuchyou can borrow fora mortgage comesdowntohow much the bankbelievesyou canrepay comfortably

Often, first-home buyers will seek to supplement their incometohelp cover the repayments:

•Buying asasingle or acouple: Buying with twoincomesisusually easierthan one. If youare applying fora jointmortgage(with apartner, familymemberorfriend) the bank will calculate howmuchitwilllend youbased on your joint incomeand expenses. If the mortgage is 100% in your namethe amount youcan borrow will be based solelyonyour income andexpenses.

•Havingatenant,flatmateorboarder: If youplantolivewith aflatmatein your newhome, youmight be able to count some of the rent as income in themortgage calculation. Be awarethat lenders won’tcount the entire rent paid to youasincome

Speaktothe bank or amortgage adviser

Your bank’smobile mortgage manager or an independentmortgageadviser (broker) canhelp youdothe numbers

Theservice is usually free. Your manager or adviserwillgothrough your finances and advise on issues such as consumerdebt, and suggestwaysto increase the available surplusyou have formortgagerepayments.

You’ll need to learnsomeofthe jargon

•Loan-to-value ratios (LVRs):the percentageofthe loanthat the bank is willing to lend. It adds up to 100%.

So if the LVRis80%, youneeda 20% deposit

•Debt-to-incomeratios (DTIs): some bankswillonlylendyou acertain multiple of your income,suchassix timesyoursalary.

•CreditContractsand Consumer FinanceAct (CCCFA): alaw that requires lenders to actresponsibly

It can, however, restrict howmuch home buyers can borrow because banks arerequired by lawtoensure the loan is affordable forthe home buyer.

Paymorethan the minimum repayment if youcan

Most first-home buyers takeout a30-year mortgage becausethe repayments arelower thanshorter mortgage terms. However, the longer the mortgage term the more interest youwillpay in total over the lifetime of the loan

If youcan affordto, it’s worth budgeting for higherrepaymentsora shorter loan term (25or15years).

What youcan affordnow might changeinthe future

When banks assess whethertheywill lend to you, theyuse atestratewhich is severalpercentage points higher thanthe actualinterestrate. Thishelps ensure youcan affordthe mortgage if interest ratesgoup. It is stillagood idea to create apersonal budget based on your actualexpenses.

Thingstoconsider Ahome-buying budget takes into account howmuchyou earn, how much deposityou have,the costs of buying,and what your one-off and ongoing expenses will be afteryou move in.

Make sure youcalculatethe upfront costs of buying ahomesuchaslawyers’ fees and LIMs, and also new ongoing costs such as council rates, body corporatefeesand house insurance.

Using KiwiSaver Saving for ahouse depositrequires that youspend less than youearn. Most first-home buyers save with KiwiSaver. Thereare manyadvantages to this:

•Good an additional 3%,although some employers use a“total remuneration” clause in the employmentagreementtoavoid paying this.

•You ll receive the annualgovernment contribution of up to $521

•You may also qualify foraFirst Home Grant. The grant ranges from $3000 to $20,000 depending on the numberofyearsyou’vebeensaving, whetherthe home is existing or brand-new, and if you’re asingle or a couple, buying

•You won’tbetempted to dip into your savingsfor everyday spending

What arethe upfront costs &legal fees?

Thetotal amount of moneyyou need to buyahomeismorethan just the deposit. Upfront expenses for buying a home include:

•$1000 to $1500 for conveyancing/ legalfees

•Atleast $400 foreachbuilding inspection

•Around $300 foreachLIM (Land InformationMemorandum)

If ahouse purchase falls through and youhavetostartagain, you mayhavetopay more than once for building inspectionsand legalfees.It’s unfortunate, howeveryour building inspectorand/orlawyercan save you from buying alemon

Additional costs

Moving in also costs money. Thereare removal truck costs if needed,utility connectionfeesand youwillneedto buyfurnitureand furnishings(unless youalready ownthese).

Thecost of buying ahomedoesn’t stop with moving in. Youmay need to budget for renovation costs.

Ongoing expenses include fortnightlyormonthlymortgage repayments, utilities bills, council rates, home insurance, and maintenance. In manyapartmentcomplexesyou will have bodycorporate fees to pay, which do at least cover your maintenanceand insurance.

Your mortgage also can have hidden costs such as lenders mortgage insurance(LMI)/Low Equity Premiums (LEP) if your deposit is less than 20%.