First Home, Next Home or Another Property: Getting Financially Prepared

Buying a home is a major financial decision. Whether you're purchasing your first home, looking to move or considering an additional property, understanding your financial position is an important place to start.

While saving for a deposit is often the first thing that comes to mind, being financially prepared involves more than having enough money upfront. How much you can comfortably borrow, and the ongoing costs of ownership are just as important, and the options available will depend on where you are in your homeownership journey.

Saving for your first home

Saving for your first home can feel daunting, particularly when you're working towards a large deposit alongside everyday living expenses. But understanding where you stand financially and what support may be available can make the goal feel more achievable.

Start with your income and expenses

Before setting a savings target, take a closer look at the money coming in and going out each month. This can help you identify how much you can realistically put towards your deposit without stretching your finances too far.

It's also worth reviewing any existing debt. Personal loans and credit card balances can affect how much a lender is prepared to let you borrow. Reducing these debts and maintaining a consistent repayment history can help put you in a stronger position when applying for a mortgage.

Make the most of KiwiSaver

For many first-home buyers, KiwiSaver can play an important role in building a deposit.

If buying your first home is one of your goals, it's worth reviewing your KiwiSaver settings early. Choosing a fund that suits your timeframe and making sure you're contributing at a rate that supports your savings goal can help you make the most of the time you have before buying.

If you're planning to use your KiwiSaver savings towards your first home, there are a few eligibility requirements you'll need to meet:

• Membership: You must have been a KiwiSaver member for at least three years.
• Property use: You must intend to live in the property as your main place of residence.
• Previous homeownership: You generally must not have owned a home before, although some previous homeowners may qualify under Kāinga Ora's eligibility criteria.
• Minimum balance: You must leave at least $1,000 in your KiwiSaver account after the withdrawal.

If you're eligible, you may be able to withdraw most of your KiwiSaver savings towards your deposit. It's worth checking your eligibility early so you know how much you could have available.

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Explore other ways to build your deposit

A 20% deposit is often used as a starting point when buying a home, but it isn't always necessary to have that much saved.

• Some lenders offer lower-deposit options, and eligible first-home buyers may be able to purchase with as little as a 5% deposit through the Kāinga Ora First Home Loan programme. There are income limits and other lending criteria to consider when applying for this.
• Family support can also make a difference. Some buyers receive financial gifts from parents or other family members, although lenders may have specific requirements around how these funds are provided.
• You may also have savings or investments outside KiwiSaver that could contribute towards your purchase. If you're planning to use invested funds, consider how long they may take to withdraw and when you'll need the money available.

Looking to upsize, downsize or move?

If you already own a home, preparing for your next purchase can look quite different. Rather than saving an entirely new deposit, you may be able to use the equity you've built up in your current property.

Understand how much equity you have

Equity is the difference between what your property is worth and how much you still owe on your mortgage. For example, if your home is worth $800,000 and you have $300,000 remaining on your mortgage, you have $500,000 in equity.

However, not all of this will necessarily be available towards your next purchase. How much you can access depends on your circumstances and the lender's requirements.

Getting a realistic understanding of your property's market value is a useful first step. Recent sales in your area and a professional appraisal can help you estimate what your home might sell for, while allowing for selling costs will give you a clearer picture of the funds you could have available.

Consider the timing of buying and selling

One of the bigger decisions when moving home is whether to sell your existing property before purchasing another. It's also worth remembering that you're generally buying and selling in the same market. While you may get less for your current home in a softer market, you may also pay less for your next property.

Selling first gives you more certainty about the funds available for your next home but may mean arranging temporary accommodation. Buying first can offer more flexibility, although you'll need to consider how you will finance both properties until your existing home sells. Bridging finance is one option that may allow you to purchase your next home before selling your current one, using a short-term loan to cover the gap. However, this comes with additional costs and risks, particularly if your existing property takes longer to sell than expected.

It's also important to consider how your next purchase will affect your finances. Upsizing may mean larger mortgage repayments, while downsizing could provide an opportunity to reduce debt or free up funds for other goals.

Even with substantial equity, lenders will still assess your income and existing commitments to determine how much you can borrow. A mortgage adviser can help you understand your options, weigh up the different approaches to buying and selling, and work out a lending strategy that suits your current circumstances and longer-term goals.

Buying an additional property

Whether you're considering a holiday home or an investment property, buying another property introduces different lending requirements and financial commitments. You may be able to use equity in your current home towards the deposit, but it's important to understand how the additional borrowing will fit into your finances.

Know what deposit you may need

Deposit requirements vary depending on the type of property and how you intend to use it. For rental investment properties, a 30% deposit is a common benchmark. Some holiday homes may be treated differently, with a 20% deposit potentially available where owner-occupier lending rules apply.

These aren't fixed requirements for every purchase. The amount you'll need will depend on your circumstances and the lender's assessment.

Think about managing more than one mortgage

Having enough equity for a deposit doesn't automatically mean you'll be able to borrow the amount you need. Lenders will consider your existing mortgage commitments alongside the proposed new borrowing to assess whether you can comfortably manage both.

If you're purchasing a rental property, potential rental income may contribute to the lender's assessment, although lenders may only include a portion of this income when calculating affordability.

It's also worth considering how your finances would be affected by changes in interest rates or periods without rental income. An additional property brings additional costs, so allowing room in your budget for these possibilities is important.

Remember, there's more to buying a property than the deposit

Whatever stage of homeownership you're at, it's important to look beyond the purchase price and mortgage repayments.

There are upfront expenses such as legal fees and property inspections, as well as the ongoing costs of rates, insurance and maintenance. Depending on your lending arrangements, additional mortgage-related fees or premiums may also apply.

Building some breathing room into your budget can help you manage these costs and unexpected expenses without putting unnecessary pressure on your finances.

How mortgage advice can help

Knowing how much you have available for a deposit is one thing. Understanding what you can borrow and which lending options may work for you is another.

Different lenders have different requirements, and the amount you may be able to borrow can vary depending on your circumstances. That's where working with a mortgage adviser can make a real difference.

At Lifetime, our mortgage advisers can help you understand your borrowing position, explore ways to use your savings or existing equity and compare options across a range of lenders. They can also manage the application process on your behalf, helping you navigate the requirements and paperwork involved.

Whether you're buying your first home, planning your next move or considering an additional property, getting advice early can help you understand what's possible before you start making decisions.

Thinking about your next property purchase?

Book a free 15-minute conversation with a Lifetime mortgage adviser to discuss your plans and explore your next steps.

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Article by Vageesh Suppusamy

This article is for general information purposes only and does not constitute financial advice. The content is based on information current at the time of writing and may be subject to change.

Lifetime Group Limited is a licensed Financial Advice Provider. For advice specific to your situation, please speak with a Financial Adviser. You can view our Disclosure Statement here.

All investments involve risk and are not guaranteed. Any examples or projections are for illustration only and should not be relied on as advice.