Disclaimer:
The information on this website is for general guidance only and does not constitute financial or investment advice. Always do your own research and seek personalised advice from a qualified financial adviser or mortgage adviser before making financial decisions. All investments carry risk and past performance is not indicative of future results.
Key Takeaways
- Reducing debt increases your borrowing power and improves approval odds.
- Every active debt repayment lowers your monthly surplus and therefore affordability.
- A clear, realistic budget helps lenders see how you will manage repayments.
- Track and adjust expenses so your spending aligns with your proposed budget.
- Confirm affordability early using calculators and adviser input to set a plan.
The New Zealand housing market is constantly evolving, presenting both challenges and opportunities for first home buyers. Our suggestion for first home buyers is to focus on key areas that bring them closer to securing a home loan pre-approval, ensuring they're in the best position to take advantage of market conditions when the time is right.
So here are our 3 tips to help you get closer to your goal of owning your first home:
1. Reduce or Get Rid of Your Debts
There are many hurdles when it comes to helping first home buyers get themselves in a position where they are ready for a mortgage. However, debt is often one we see stopping first home buyers in their tracks. Luckily, with some focused efforts, this hurdle can be overcome.
Key Point: For every $10,000 of debt, your home loan affordability is reduced by around $50,000. This is because any current debt payments - be it monthly credit card payments or personal loan payments - need to be included in your monthly expenses declared to the Bank.
These expenses then lower your monthly surplus (income less expenses) which determines your home loan affordability.
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2. Create a Home Ownership Budget
With the implementation of CCCFA regulations in 2021, it has become imperative for individuals seeking bank loans to have a comprehensive understanding of their monthly expenses. These changes have posed significant challenges for first home buyers in obtaining a mortgage, as banks have become more cautious in their approval process.
During 2023, the banks became more flexible with their analysis of expenses. Provided you can provide feedback on what amendments to your current spending will change, within reason the banks will accept these changes.
Therefore, first home buyers need to effectively manage their expenses to enhance their chances of loan approval.
Our Suggestions:
- Create a homeownership budget using the FHBC Budget tool or Pocketsmith's budgeting app
- Set up a system that you can stick to (automatic payments, monthly review of bank statements)
- Print out bank statements and review all current expenses for reductions (think unused subscriptions, dining out and other discretionary spending)
3. Confirm Your Home Loan Affordability
An important step to being ready to apply for a home loan is getting an idea of your current affordability. That way you can work out a plan to get you from where you currently are to a stage where your home loan affordability can help you purchase your first home.
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