the five steps towards your first home · your first home congratulations, by picking up this guide...

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THE FIVE STEPS TOWARDS YOUR FIRST HOME

By Julian Lingard


CONTENTSGETTING STARTED WITH JULIAN LINGARD ..................................3

THE 5 STEPS TOWARDS YOUR FIRST HOME ................................ 4

STEP 1: KIWISAVER ....................................................................................5

STEP 2: DEPOSIT ....................................................................................... 6

STEP 3: BUDGET ........................................................................................ 9

STEP 4: ADVICE ..........................................................................................11

STEP 5: PROTECT .....................................................................................12


GETTING STARTED WITH JULIAN LINGARDJulian is a valued member of the team at Lifetime, with 16 years of experience in insurance and financial services. This booklet has been created with his help to guide you through the process of getting into your first home. Julian is passionate about this subject and gets a real kick out of helping people achieve their financial goals in life.

As an Authorised Financial Adviser (AFA) his ethics and practises are held to a high standard. For information on mortgages, insurance and investments including KiwiSaver, Julian is your go-to-guy.

I get a real kick out of helping people achieve their financial goals in life.

Julian Lingard Authorised Financial Adviser, Lifetime


THE 5 STEPS TOWARDS YOUR FIRST HOMECongratulations, by picking up this guide you are already one step closer to getting your first home. Over the next few pages we are going to clearly explain the 5 key steps to making your first home dreams come true. It may seem daunting at first but we are here to assist you along the way and make it easy.

KiwiSaver. Deposit. Budget. Advice. Protect.

5 KEY STEPS1 2 3

When it comes to securing funding for your new home, there are a number of ways we can help. From ensuring your KiwiSaver is working for you, taking advantage of the various government support initiatives, understanding what deposit you need and having the budget in place to get there. And finally, we can make sure you protect this dream with the necessary insurances.

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STEP 1. KIWISAVERKiwiSaver is an excellent way to grow a deposit for your first home. Your money is diverted to your KiwiSaver fund by your employer, how easy is that!

Employers are required to contribute 3% of your income and the Government wants to help you out too. If you contribute a minimum of $1,042.86 a year ($21 a week) you will be eligible for the Member Tax Credit of $521.43. It’s free money!

You can choose your rate of investment, be it 3%, 4%, or 8%. Come have a chat to one of our friendly advisers about what will work best for you in the long and short term. It’s amazing how much difference a few percentage points can make.

Let’s have a look at the figures. Let us assume Max and Alex are a couple who earn $100k per year together; Max earns $65,000 and Alex earns $35,000. Investment growth is currently 2.5% net.

NEW HOME BUILDYears Grant

3 years $6,000 4 years $8,000 5 years $10,000 (max)

EXISTING HOME PURCHASEYears Grant

3 years $3,000 4 years $4,000 5 years $5,000 (max)

That’s $31,344 extra they could use towards a first home with just a 5% increase on their income savings.

Now, let’s move on to see what a HomeStart Grant can add to this figure...

HOMESTART GRANT

The HomeStart Grant is available to anyone that has been contributing to their KiwiSaver for at least 3 years. This is a grant from the NZ Government and does not have to be paid back. The below table shows the value of the grant you could receive for either the purchase of an existing home, or the build of a new home, by the number of years you have been contributing to KiwiSaver.

And yes the HomeStart Grant is per person. It is an excellent way for couples to combine forces to buy their first home. There is a catch; you must live in the home for 6 months. Living in your own home gives you free money? Sign me up!

If Max and Alex were to contribute the minimum 3% of their income, in 5 years:

Max will have $23,606 Alex will have $14,838 Together they would have $38,444.

If they increase their investment to 8%, in 5 years:

Max will have $43,980 Alex will have $25,808 Together they would have $69,788.


STEP 2. DEPOSIT“The more money you can contribute towards your first home the better.”

Yes, you do need a deposit! There are ways to secure a mortgage with no deposit but the process involves several major hurdles to jump through which we will outline later in the booklet.

Keep these key areas in mind when you first start thinking about a mortgage:

• The more money you can put towards your first home the better

• How you can pay off your existing debts

• Consider the right KiwiSaver plans

With a larger deposit you won’t need to borrow as much and you may have the opportunity to buy a more expensive property, provided you can afford the repayments. A larger deposit also lends more bargaining power as a customer, which may help you negotiate a deal that benefits you such as a lower interest rate.

Make sure you don’t owe any money on personal loans, credit cards and hire purchases. Even with a good income and reasonable deposit, banks may choose not to proceed with your application if you have high amounts of short-term debt. Your deposit does not mean as much when you have debt. The upside of paying off credit cards and other loans is the extra funds you can now add to your savings account, which will grow your deposit faster and shows the bank how well you manage money.

KiwiSaver is an excellent ‘set and forget’ way to help you get a deposit together. Banks consider KiwiSaver to be a personal savings account. Along with employer contributions and Member Tax Credits, you’ll usually see your balance coming along nicely with very little effort.


LOW DEPOSIT WELCOME HOME LOANS

No matter how hard you save, some will still struggle to attain a 20% deposit. If you qualify for a Welcome Home Loan, you will only need 10% deposit to purchase your first home, however you’ll still need to meet your bank’s lending criteria and be approved.

Not all banks offer this service, but the ones that do will be looking for evidence of “genuine savings”. With a deposit less than 20%, you will need to prove you have put everything you have into getting the money together because banks need to see evidence of an outstanding work ethic and dedication when taking any risk.

Another way to impress the bank is to separate your regular savings into a separate savings account and call it “house deposit”. Your statements will clearly show if a regular contribution is being made over 3-6 months (minimum).

You can also make use of term deposits as banks see these long-term savings commitments. And of course, KiwiSaver.

FIRST HOME PURHCASE CRITERIA

After you have checked you meet the criteria and before you withdraw your KiwiSaver, it is good to note some restrictions:

1. You cannot be earning more than $85,000 gross per year as an individual or $130,000 for two or more people.

2. Houses have capped prices that vary across the country.

House cap prices range from:

• $600k caps for established properties and $650 for new properties in Auckland.

• $500k established - $550k new - in Western Bay Of Plenty, Tauranga, Hamilton, Kapiti Coast, Porirua, Upper Hutt, Lower Hutt, Wellington, Nelson, Tasman, Waimakariri, Christchurch, Selwyn and Queenstown.

• All other areas in New Zealand have a cap between $400k for established homes and $450k for new.


NO DEPOSITGETTING THERE WITH NO DEPOSIT

Some fortunate individuals have parents or step-parents that may have been homeowners for some time, and as a consequence may have repaid all or most of their mortgage. This is called equity, and if they’re keen to help you get on the property ladder, you may be able to get there without a deposit.

If you find a home that’s right for you that you purchase for $400k, here’s how the bank may proceed.

The bank takes a loan of 80% of the home’s value: $320k in this instance.

Your parents home will be mortgaged to the bank for the remaining 20% or $80k. You will be responsible for the full $400,000.

The guarantee provided by parents is limited to the 20% mortgage registered by the bank on their home. Banks confirm this in writing to avoid confusion.

If they decide to buy a new home and you haven’t paid off enough of your mortgage, the guarantee can be transferred to their new home.

If anything goes wrong, and you can’t pay the mortgage, your house will generally be sold first as you owe the bank the most money. In the likelihood of a mortgagee sale, it takes 3 months of missed loan payments to begin this process so you and your guarantors will have ample notification.

By the time paperwork is filed and the home goes to auction, you will have more than enough time to address a financial issue if it arises.

Your parents may have to pay if you can’t, so the bank may look at them, too. They may take into consideration:

• Whether or not they have enough equity on their mortgage to increase it.

• If your parents can cover your 20% if you can’t meet your repayments.

• If you can pay back your guarantor within a 5 year period.


STEP 3. BUDGET“A budget is telling your money where to go instead of wondering where it went.”

Making a budget and sticking to it will get you into your first home faster. After paying for your weekly rent, power, the internet, phone and any loans you might have, you’ll probably have quite a lot left over. If you’re spending everything ‘left over’ in your account each week, you’re starting from scratch each time.

As per the advice offered earlier, getting your hire purchase, car loan, or any other short-term debt paid off is important. The key, however, is getting serious about saving once your purchases are paid off.

Here is a step-by-step process to making (and sticking to) a budget.

MAKE A BUDGET - STEP BY STEP Write down everything you spend money on every week.

Start with what you have to pay and work your way down to what you want to spend your money on.

Take note of the things you spend money on (takeaway coffee, new season clothes, eating out) and consider if you could spend less or do without them.

Figure out what is left over after the weekly essentials are met.

Set yourself an allowance for the things you really want to spend money on, like movies, a night out, or a holiday - we all need some spending money.

Be brutal. Remember, you’re saving for your first home.

Put everything left after essentials and a carefully chosen allowance into a separate savings account under “House Deposit”.

Make sure you put it aside as soon as you’ve paid your necessary bills! It’s very tempting to spend money if it’s ‘just sitting’ in your everyday account.

Empty your day-to day account into your savings account the evening before payday. A few dollars each week add up quickly.

Now that you can see how much you can save, you’ll be able to see how soon you can buy a home.

Keep up the budget!

Impress the bank with your savings account!

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GETTING PRE-APPROVEDOrganising pre-approval helps you get the confidence to go shopping for a home knowing you can afford the repayments. This is even more important if you are buying at auction or deadline sale. To get the best chance of owning the home you have your sights set on, you need to know what you can spend and be ready to take action.

When using KiwiSaver as part of the funds towards a deposit, you are required to get a letter from your KiwiSaver provider. It tells you and the bank how much you can withdraw towards your first home. You’ll need to contact your adviser to arrange this for you, as KiwiSaver providers are generally very busy and letters may slip through the cracks. An adviser takes responsibility for this step so that you can focus on other matters.

If you’re wanting to take advantage of the HomeStart Grant it is time to get pre-approval for this too. It can take 20 days or more to get approved, time you may not have when you only have 10 days to confirm purchase on the home you have your heart set on.

By sorting out your pre-approval early, you’ll save yourself, your adviser, real estate agents, and other parties a great deal of stress. Don’t leave it all to the last minute; get organised or better still, ask an adviser to do it for you!

HOW MUCH CAN I BORROW?Banks each have their own criteria for determining what they are prepared to lend, but here is a broad guideline:

• Take your annual household income and multiply it 4-5 times.

• If you have no children the figure will be closer to 5 times.

• If you have children and/or short-term debt, the figure will tend to look more like 4 times your yearly income.

• In Christchurch, most first home buyers are looking at residences between $350-$450k.

• In order to meet repayments at the top end, you will need a household income between $90,000 - $112,000.


STEP 4. ADVICEWHO DO I GO TO NOW?

After taking in all this good advice, you may be considering taking care of your financial situation yourself. If you feel confident armed with this information and are comfortable undertaking the process you could. However, here a few reasons why you might want to consider an adviser:

WHAT DOES IT COST FOR AN ADVISER?

Absolutely nothing under normal circumstances. Zilch. Zip. Zero.

Advisers are paid a commission by the bank that approves your mortgage and are required by law to provide you with details of this along with evidence of qualifications and certification.

So 99.9% of the time you don’t have to pay a thing to the person acting in your best interests, giving you advice, helping you apply for grants, withdrawing KiwiSaver, arranging valuations and helping you through the daunting process of getting on that property ladder.

Why wouldn’t you take advantage of the skills a professional can offer you? Many consider the process of applying for and purchasing a home as one of the most stressful life events. Utilising an adviser will save you time, money, and worry - with no risk.

WHY USE AN ADVISERAsking the bank for hundreds of thousands of dollars is a nerve-wracking idea for even the best salesperson. Advisers already have great relationships and networks within banks, they know what the bank is looking for and how to ask.

Advisers know the best way to handle banks as this is an area they specialise in; you’ll be getting the best, most up-to-date information possible.

Bank employees get paid whether or not you get approval, while an adviser makes nothing if their offer on your behalf is declined. That’s a pretty good incentive to make sure you don’t waste your time or theirs.

Advisers can help with the complicated, often daunting task of gathering applications and supporting information. You might buy a home once or a few times over your lifetime - but an adviser handles these areas every day.

Advisers can provide advice about how best to manage your savings, where to invest and the necessary documentation such as valuations.

We all live busy lives. Are you happy to take time off work to fill out several different applications at several different banks? Advisers can come to you. They can break down the time-consuming search and repeated information in one sitting. Advisers will do the legwork for you, leaving you free to continue your daily life.

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STEP 5. PROTECT House Insurance and Life Insurance. We’ve been over a lot here, but there’s one last thing to discuss. Insurance is an important part of home ownership and the decision making process that needs to be considered when you’ve secured your investment.

You need insurance. It’s that simple. Not just to protect yourself; banks require you to have it. They are making an investment and they need to know that they (and you) are protected if anything goes wrong.

After working so hard to buy a home, disaster could still strike. Would you really want to start from scratch all over again, this time saddled with a mortgage-sized debt? How would you feel leaving the people in your life this burden if you become too sick to work, or worse, die?

This process doesn’t have to be complicated or costly. It’s simple. There are two areas to consider when planning your financial future. What will happen if you

A. Die B. Become severely injured or too sick to work

Dying is hardest on those left behind. The money from your life insurance exists to support your partner/spouse/children. They’ll still have bills to pay, including a mortgage, but your income will be gone with you.

At a minimum, Life Insurance pays off your mortgage debt so your family will still have somewhere to live after the incredibly difficult event of your death. You can choose to provide extra support to help them through the years to come, but we recommend you have enough to cover funeral costs and pay off a mortgage.

Being severely injured or becoming too sick to keep working can force you to take extended periods of time off work and in some cases, never return. There are a few ways to deal with this such as a monthly benefit called Income Protection. You’ll receive a lump sum if diagnosed with a critical illness or become permanently disabled.

We recommend talking to one of our excellent advisers about:

It is so important to protect the ones you love and yourself from excessive suffering. Insurance is the best way to cover yourself if the unexpected occurs.

We here at Lifetime are dedicated to helping you get the perfect insurance sorted for your unique situation, while offering advice on all aspects of first home buying.

We look forward to assisting you towards achieving one of the greatest milestones of your life!

INCOME PROTECTION

An on-going benefit of around 75% of your income prior to sickness or injury.

MORTGAGE & RENT COVER

A good option for those on limited incomes that still require protection if a household income is lost.

TRAUMA INSURANCE

Covers you in the case of unpleasant health issues such as cancer and stroke, and provides a lump sum with claim. You may require funding for medical treatments not paid for via the public system, short-term income replacement, or help to pay off a debt.

TOTAL & PERMANENT DISABILITY

If you find yourself completely incapacitated, you’ll receive a lump sum to help get you through. Your house may need modifications, you may require nursing care, you may have debt you thought you could pay off when you were able-bodied.


LET’S GET YOU HOME Overwhelmed? Don’t be. We are here to help, to get this process started all it takes is a phone call or an email.

Julian is passionate about helping people achieve their goal of owning a home, here are some of the things that his clients say about him.

Contact Julian Lingard to arrange your free chat today.

T: 03 372 1971 M: 027 816 0520 [email protected]

ABOUT LIFETIMELifetime is a full-service financial advisory practice committed to securing a smarter financial future for Kiwis. From humble beginnings in 1999 as a small South Island business, we’ve grown to become a nationwide company of highly experienced financial, business and insurance advisers. If you’d like to learn more about obtaining a first home loan or any other of our financial services, visit www.lifetime.co.nz.

My partner & I have just bought our first

house & Julian has been absolutely amazing.

The process of getting everything together to

go unconditional can be stressful when you are

waiting on other agencies pushing time limits, but

Julian was brilliant & chased everything up for us. He managed to get us

a fantastic deal, despite being low equity buyers.

We definitely recommend him, especially to those who are new to buying houses & a little unsure

of the processes. He will make it a seamless

experience for sure.

- Olivia Pither

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14Lifetime Market Insight

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