Stop Renting and Buy Your First Home

Stop renting and buy your first home this year.

It’s not always easy to buy your first home. But renting isn’t much fun either, especially if you fear you’ll rent forever.

As a mortgage adviser in Auckland I know that it’s not always easy to buy a home. House prices are high and that means you will typically need a larger deposit.

So sometimes you need to look outside of the ordinary bank mortgages.

We know that rents for new tenancies nationwide rose by 5.8 per cent in the year to December 2022, according to Stats NZ’s latest rental price index. Add inflation of 5.9 per cent, and tenants need a serious pay rise or some lifestyle changes.

Buying a home may be more expensive than renting now, but have you thought about the long term?

In this article, we explain why you should try to buy and why waiting can cost more. We also cover what lenders look at, and a way to buy you may not have considered. I’ve also added a podcast here for you.

Why You Should Stop Renting As Soon As You Can

Renting may seem like the only choice that you have right now.

Most people have rented for a time, including many that have managed to buy a home.

There are many reasons that people want to buy their own homes and these include;

Stability – when you own your home, you have more control over your life. You have a permanent place for you and your family. For children, this is a huge advantage, because they can stay at the same school near their mates. But everyone benefits from that stability.

Livability – when you own your home, you can change or renovate it to suit the way you live. It may be as simple as splashing around some paint, removing a wall, adding a deck or doing a renovation or extension.

Ability to Add Value – with some planning, renovations can add real value to your home. That value gives you choices. For example, you could move to a home that suits you better, or buy an investment.

Reduce Your Expenses – when you rent, you have little control over the cost. Rising rents become a real worry as you near retirement. When you buy, you’ll probably start with a large mortgage. Over time, though, you pay it off. After that, your costs are far lower than rent.

As you can see, owning has real advantages. At first, though, it may cost more, especially if you want the same type of home or area.

Many investors want a yield of 4% to 5%. So a property is often worth 20 to 25 times its annual rent. For example, a house renting for $400 a week might be worth about $500,000. One renting for $750 a week might be worth closer to $1,000,000.

Now compare a mortgage. At 4.50% over 30 years, $400 a week pays off about $340,000. Similarly, $750 a week pays off about $600,000.

So, to keep repayments close to your rent, you’d need a smaller home or a large deposit.

But it’s also important to think what is best over the longer term.

Buying Your First Home Can Be Hard

If you want to buy, you need to start somewhere. Most likely, that means a home that isn’t as nice as your rental.

Most first home buyers need to make some changes to get their foot in the door.

The most important thing is to understand how the various lenders think and what they look for in an application. Banks have some very particular policy, but each banks policy is slightly different. Then there are the other non-bank lenders which have different policies too.

The important criteria the lenders look at are;

Income – enough income is probably the most important thing. It’s not just how much you earn, though. Lenders also check that your income is regular and will continue. Bank policy can be strict, and some types of income are scaled back or ignored.

Expenses – the lenders are looking closely at income, but even more closely at expenses. They now will go through your bank statements and want to identify all transactions.

Other Debt – many first home buyers have other debt, and lenders allow for all of it. Too much short-term debt makes a mortgage harder, because you pay it on top of the mortgage. Still, it doesn’t rule you out. We can review your debt, and you may be able to consolidate it into a cheaper loan.

Savings – lenders want to see a deposit. They also want to know you can afford repayments, which are often higher than your rent. Most Kiwis use KiwiSaver for the deposit. However, it also helps to save regularly so that rent plus savings equals the mortgage repayment. That shows the lender you can realistically afford it.

Account Conduct – lenders run a credit check and review your bank statements. These show how you manage money. It’s one thing to have a large income, but often it’s more important to manage what money you have well.

There will be other things to consider, but if you are planning to get a mortgage this year then these should be the first things to look at.

What About The Deposit?

This is one of the biggest challenges for first home buyers, and is a key reason many delay the purchase or never purchase at all.

Banks may have told you that you need a 20% deposit. Otherwise, you must fit the First Home Loans criteria or buy a new build. That’s the standard bank answer. However, it’s important to consider the non bank lenders too.

Many first home buyers can’t meet the banks’ deposit rules. Yet they have the income to afford the repayments.

Consider The Co-Ownership Option

One way to get into your own home with a lower deposit is using co-ownership. A company owns part of the home, and you buy that share later.

If you have at least 5% deposit then you might be able to use co-ownership.

You use your 5% deposit and get a mortgage for 80% leaving the co-ownership company to fund the remaining 15% so you effectively have 85% of the home with the option to buy the remaining 15% later. It’s better if you have more than 5% deposit as it means you need less via the co-ownership company.

It’s worth considering, because it can get you into your first home sooner.

Tell me your story and I can advise you about both the bank mortgages and non bank home loans so you can buy your first home.