How Much do I Need to Put a Deposit on a House
Attention all Millennial's of the Smashed Avocado Society
Warning — This post is very factual
A house deposit? While you read through this you may find yourself thinking, hey I actually fit into these examples. It's not as hard as most Millennials think.
Let's clear the air, first off there are many ways in which you can come by the initial deposit for your property. While some properties need 20 per cent deposit, a turn-key or new build — only need 10 per cent. In NZ we have a Welcome Home Loan scheme which allows first home buyers to buy an existing home with only a 10% deposit. Banks are constantly changing their allowances for low deposits on homes, so it's best to always ask your Financial Adviser where you sit.
Let’s start with an example for a 10% deposit through the Welcome Home Loan scheme.
Sarah and Matthew are both first home buyers who have a combined yearly income of $125,000 per year — their income is within criteria which is below $130,000 — see prior post here
They put an offer in on an existing property in Christchurch for $400,000 — this purchase price fits the criteria — must be under $450,000 for an existing home and $500,000 for a new build
To purchase a home at $400,000, they need to make up a 10% deposit: $40,000 ($400,000 x .1). Their deposit is made up as follows:
- Kiwisaver Matt: $8,000
- Kiwisaver Sarah: $17,000
- Home Start Grant Matt: $4,000 — Matt’s only been contributing for four years
- Home Start Grant Sarah: $5,000 — Sarah’s been contributing for more eight years however $5,000 in the maximum amount as they are purchasing an existing home not a brand new home
- They have $6,000 from their own savings
Based on the above purchase price and deposit amount, Matt and Sarah would have a loan amount of $360,000. Their weekly repayments would be $418 p/w which is a principal and interest repayment at 4.45% over a 30 year loan term — more to come on this. Luckily for Matt and Sarah, they have a boarder living in their spare room who’s contributing $200 per week to their mortgage. This leaves Matt and Sarah with a payment of $218 p/w which is less than their prior rental.
My second example is Kerri, who is purchasing a brand new apartment in Christchurch for $350,000. Kerri has a yearly income of $60,000 but also has her parents support on the loan. We will come into guarantors down the track.
Kerri needs to make up 10% of $350,000: $35,000 ($350,000 x .1). Her deposit is made up as follows:
- Home Start Grant: $10,000 - due to this being a brand new property (Code of Compliance issued within 6 months) Kerri qualifies for the maximum amount — 5 years of contributions
- Kiwisaver $10,000
- Personal Savings: $7,000
- Gift from parents: $8,000
Kerri would be left with a loan of $315,000. Her weekly repayments would be $365 p/w which is a principal and interest repayment, based at 4.45% over a 30 year term. Kerri being money conscious, has a boarder living in her spare room who’s contributing $180 per week to the mortgage. This leaves her with a payment of $185 p/w.
Let’s not forget Matt, Sarah and Kerri will also have Rates and Insurances for their new properties. These costs vary depending on the size and value of a property. Always make sure you do your due diligence before you make an offer on your next home as it’s not just the mortgage repayments you need to consider.
When you are purchasing a home with a 10% deposit there are a few extra costs to be aware of:
- A registered valuation is usually compulsory for low deposit homes — This can cost around $700
- A low equity fee: depending on the size of your deposit, this can be between .25% & .80% of your loan amount.
When it comes to purchasing homes, the bigger the deposit the better. But as you can see there are many different options out there. For those wanting more information on deposits and how you can get yours, feel free to contact me.
Stay tuned for an upcoming post on the hidden costs behind the white picket fence.
- Interest rates are at an all time low which makes the costs of lending similar to renting
- A house deposit can be made up many different ways and no one deposit is the same - it's best to contact your financial adviser to see where you fit
- Guarantors can also play a major part, this could be a parent or relative — more to come on this topic
- Hidden costs such as rates and insurance — be sure to keep these in mind when you make your next offer