Step-by-Step Guide to Buying Your First Home
Buying your first home is an exciting milestone, but it can also be a complex and daunting process. From securing a mortgage to making an offer and finally moving in, there are several steps involved. This guide will walk you through each stage of the home-buying journey, helping you make informed decisions and avoid common pitfalls.
Step 1: Assess Your Financial Situation
Before you start house hunting, it’s crucial to assess your financial situation. This includes understanding your income, expenses, savings, and credit score.
Budgeting and Savings
- Deposit: Most lenders require a deposit of at least 20% of the property’s value. However, some government schemes and non-bank lenders may accept lower deposits.
- Additional Costs: Factor in other costs such as legal fees, valuation fees, building inspection fees, and moving expenses. Websites like Westpac provide detailed lists of these costs.
Credit Score
Your credit score plays a significant role in securing a mortgage. A higher credit score can help you get better interest rates and loan terms. Check your credit report for any errors and work on improving your score if necessary.
Step 2: Get Pre-Approval for a Mortgage
Getting pre-approved for a mortgage gives you a clear idea of how much you can borrow and shows sellers that you’re a serious buyer. To get pre-approved, you’ll need to provide proof of income, details of your assets and liabilities, and information about your credit history.
Types of Mortgages
- Fixed Rate: Your interest rate remains the same for a set period, providing stability in your repayments.
- Floating Rate: Your interest rate can fluctuate based on market conditions, offering flexibility but also potential variability in repayments.
- Split Loans: Combine fixed and floating rates to balance stability and flexibility.
Step 3: Research and Find a Property
Understanding the Market
Research the property market to understand average house prices in your desired area. Tools like the Property Insights tool on Trade Me can help you get a feel for house prices in different suburbs.
Types of Ownership
- Freehold: You own the property and the land it’s on.
- Leasehold: You own the property but lease the land from a landowner.
- Unit Title: Common in apartments, you own the unit and share ownership of common areas.
Property Inspections
Before making an offer, it’s essential to conduct thorough property inspections. This includes obtaining a Land Information Memorandum (LIM) report, a builder’s report, and a registered valuation. These reports help identify any potential issues with the property.
Step 4: Making an Offer
Methods of Sale
Understand the method of sale for the property you’re interested in. Common methods include:
- Auction: Competitive bidding process where the highest bid wins.
- Tender: Submit your best offer by a set date.
- Negotiation: Make an offer and negotiate terms directly with the seller.
Making a Conditional Offer
A conditional offer is subject to certain conditions being met, such as obtaining finance, satisfactory property inspection, or sale of your existing home. Consult with your lawyer to ensure your offer includes the necessary conditions.
Step 5: Finalising Your Mortgage
Once your offer is accepted, you’ll need to finalise your mortgage. This involves confirming the loan amount, interest rate, and repayment terms with your lender. Ensure you have property insurance in place before settlement, as this is often a requirement for the loan.
Step 6: Settlement and Moving In
Pre-Settlement Inspection
Conduct a pre-settlement inspection to ensure the property is in the agreed condition. Check that all agreed repairs have been made and that no new damage has occurred since your last visit.
Settlement Day
On settlement day, the ownership of the property is transferred to you. Your lawyer will handle the legal and financial transactions, including paying the purchase price to the seller. Once settlement is complete, you’ll receive the keys to your new home.
Government Assistance for First Home Buyers
Several government schemes can help first home buyers get onto the property ladder:
First Home Loan
The First Home Loan, underwritten by Kāinga Ora, allows eligible buyers to secure a mortgage with a deposit as low as 5%. To qualify, you must meet specific criteria, including income caps and property price limits.
KiwiSaver First-Home Withdrawal
If you’ve been contributing to KiwiSaver for at least three years, you can withdraw your savings to put towards your first home. This includes your contributions, your employer’s contributions, and the government contribution, minus $1,000.
First Home Grant
If you’re eligible, you can receive a grant of up to $10,000 for individuals or $20,000 for couples to put towards your deposit. The grant amount depends on how long you’ve been contributing to KiwiSaver and whether you’re buying an existing home or a new build.
Common Mistakes to Avoid
Not Getting Pre-Approval
Many first home buyers make the mistake of looking for property before securing mortgage pre-approval. This can lead to disappointment if you find a property you love but can’t afford.
Overlooking Additional Costs
Ensure you budget for all additional costs associated with buying a home, such as legal fees, valuation fees, and moving expenses. These can add up and impact your overall budget.
Not Shopping Around
Don’t settle for the first mortgage offer you receive. Shop around and compare rates from different lenders to ensure you get the best deal. Consider both bank and non-bank lenders.
Final Thought
Buying your first home is a significant financial commitment, but with careful planning and informed decision-making, it can be a rewarding experience. By understanding the steps involved, securing pre-approval, researching the market, and utilising available government assistance, you can navigate the home-buying process with confidence. Remember to seek professional advice from mortgage brokers, lawyers, and real estate agents to ensure you make the best decisions for your financial future.
For more detailed information and tools to help you on your home-buying journey, consider visiting resources like Settled.govt.nz, MoneyHub, and Sorted. These platforms provide valuable insights and up-to-date information to help you make the best decision for your financial future.