Mortgage requirements part 1: How much deposit do I need?

It’s absolutely true that putting down a larger-than-necessary deposit can help you save big on interest, but in some scenarios (high rents, good rates, favourable market conditions and so on) you’ll do whatever it takes to get that first foot on the property ladder.

In this series of articles, we’re going to cover the absolute bare minimum you’ll need to buy your first home:

Minimum deposit

As it stands, most mortgage providers in Aotearoa require a minimum deposit of at least 20 percent of the amount you want to borrow. Therefore, if you’re buying a property for $650,000, you’ll need to put down a deposit of at least $130,000. This deposit essentially covers the risk the bank is taking on by granting you a loan.

Even though deposit requirements are similar across most lenders, rates can vary substantially, so it’s always a good idea to compare mortgage rates in New Zealand before signing anything.

Are there any other options?

No matter how you look at it, a 20 percent deposit is a big chunk of cash, and many first home buyers struggle to save up the full amount. If this hits close to home, the good news it that you do have some options:

• Loan guarantee: Under this arrangement, you borrow up to 80 percent of the property’s value from the bank using the property as security. The remaining amount is borrowed against the equity in a guarantor’s (often your parents or another family member) property.
• Construction loan: In recognition of a housing shortage in many parts of the country, the government has implemented different rules for new properties. If you’re building a home and are going to live in it, many lenders will require a deposit of just 10 percent.
• Buy as a collective: It’s also possible to split the upfront costs by combining your savings and buying a house with friends.

Stay tuned for part two, in which we’ll tell you how to make the most out of Kiwisaver.