As mortgage brokers we get calls from a lot of people who want to be a first home buyer but are really just not in a position to buy.
There are various reasons and while everyone will have a slightly different financial and non-financial situation there are some common themes.
While we want to help everyone and can still help many of these people with a home loan, some are just not in a position to buy yet and we explain why.
The Main Reasons People Are Not Ready
Of course there are many reasons why a potential first home buyer may not be able to get their home yet, but here are some of the more common;
Deposits – the banks typically want a 20% deposit which makes it very difficult especially in the more expensive places like Auckland. Of course as mortgage brokers we are often able to get home loans with a lower 10% deposit with banks (sometimes using Welcome Home Loans) and also non-bank lenders. People may also qualify for the HomeStart Grant which can help boost their deposit and we can provide details to see if this is going to be available.
Incomes – banks and other non-bank lenders want to see some certainty with income. For self-employed, contractors, casual workers and anyone with a new job this can cause issues. The general rule with self-employed wanting a home loan is to provide 2-years financials or tax returns to ‘prove’ your income and in many cases there are some adjustments that we can make. Contractors need to be able to demonstrate consistency of work and income, plus some contracts are deemed ‘almost’ like employment. Casual work if difficult because by nature it is not permanent and therefore you could be out of work tomorrow or next week.
If you have only been in a new job for a short period of time you may still be within the 90-day probationary period and therefore there is some lack of certainty; however if asked many employers may waive this if asked.
If you are really serious about getting into your first home then you may want to consider getting a part-time job to boost your income.
Debts – many young people have credit cards, store cards, personal loans and hire purchase debt. While you might have excellent repayment history, any debt repayments reduces the money that you have available for paying a home loan. Of course it would be best to pay off any debts; however with the deposit requirements the way they are it is often better to focus on saving and then consolidate any debts you have into a single loan at a lower interest rate or at least with lower repayments. As mortgage brokers we can help sort this out for you and have some good options available to us.
Expenses – in life we all have expenses but some people have higher expenses than others and you should review these to see how they can be minimised. Some costs are harder to minimise and the big ones that have the most impact are childcare and child maintence costs, private school costs, expenses relating to animals (grazing for horses etc) and regular donations. You may not want to or be able to change any of these; however it would be a good idea to discuss these with an adviser to see if you could structure the payments differently which might make applying for a home loan easier.
Of course there are many other reasons that might mean a first home buyer is not ready and these can be dealt with on a case by case basis.
Get Ready To Buy Your First Home
We have identified here some of the major reasons for first home buyers to be unsuccessful, but that does not mean buying a first home is impossible.
Buying a first home has always been hard
and probably always will be hard… but
Most good mortgage brokers will be able to identify ways to help people that are not ready to buy yet so it is definitely worth getting together and working through your finances. Some things that can be done to help are;
Increasing your deposit – this is all about saving more and this can be done by having a dedicated savings account that you don’t dip into, but also KiwiSaver is a great method for people to save a deposit for their first home.
Prove plus improve your income – once you have spoken to a mortgage broker and worked out how the banks like your income to look you can start getting things sorted out. Of course increasing your income is always helpful, but there are other ways to make things look better for the banks. The main thing is to maximise the income that you can ‘prove’ and this means making sure that all income goes through your bank account including any payments from boarder and any part-time paid work.
Review any debts – when applying for a mortgage it is important that any debt repayments you have are paid on time. Banks will also consider your affordability and for this reason it can be a good idea to consolidate all your debts into one single loan and spread the repayments over a longer term; therefore reducing your repayments. Speak to your mortgage broker as they have access to a number of banks and other lenders that offer personal loans at reasonably low interest rates.
Review your expenses – when you apply for a home loan the banks and other non-bank lenders will review your finances and particularly your bank statements which shows all your expenditure. It is a good idea to review your expenses and see what you can reduce at least 3-months before you apply for a first home loan. Expenses like gym memberships and sky television subscriptions can often be done without for a few months. Some banks also treat things like your KiwiSaver contributions and regular donations in the same way as other expenses and therefore it is good to put these on hold before applying for your first home loan.
These are just some of the things that you can do to increase your chances of having your home loan application approved, but mortgage brokers may find other things that will help too.
For some people making change is not easy, but without making any changes the chances of being able to buy your own home might not be that good either.
Sometimes it comes down to how much you really want it.
Managing Your Money Better
For budgeting and managing expenses we recommend a great piece of software called PocketSmith. This does not adjust your spending, but it does show you exactly what you have been spending your money on and allows you to create and monitor the budgets you create.
Saving money can be hard and a little boring too, but when you are focused on buying your first home then there is additional motivation.
Kiwi First Home Buyers Group
It is great to have a group of supportive people around you as you save and get prepared to buy your first home.
A few years ago we created a Facebook Group called the Kiwi First Home Buyers Group specifically as a place where people could get more information on subjects relevant to first home buyers. You can CLICK HERE to visit and join the group.
We All Know Someone That Needs Help
We all know someone that needs a little help getting a first home loan and while in some situations it is easy to identify and address the issues, others are a little more difficult.
Unfortunately some people will not be prepared to make the changes required and therefore may stay renting forever. There are also people in situations which mean they cannot afford the home that they want and this means changing their expectations or accepting that they will be renting for the time being.
The purpose of this information is to help explain to those people that are motivated and really do want to buy their first home but are not quite in a position to do so now.
