Insider secrets: here's how your kids can improve their chance of securing a first home
With the average property price tipping $900,000 and the re-introduction of some difficult-to-navigate regulations, the dream of homeownership for those yet to get a foot on the property ladder may seem further away than ever.
For many, relying on parental assistance may be the only way to save enough for a deposit.
In fact, research suggests the Bank of Mum and Dad (i.e. a cash gift from parents) could be New Zealand's sixth largest mortgage lender to first-time home buyers.
If you're part of the Bank of Mum and Dad contingent, there's more you can help your kids with than just the funds to secure their deposit.
Luke Jackson, Head of Resimac NZ, reveals insider tips you can share to help them navigate a challenging market.
Have a discussion about credit
Before setting purchase plans in motion, first home buyers should be conscious of the impact a credit record can have on home loan applications.
Your credit record shows your financial history over the last five years and any loans you've applied for, including credit cards, home loans and buy now, pay later services. Luke suggests first home buyers obtain a copy before applying for a loan.
"Be mindful that lenders use your credit record as a scoring system. Getting a copy of this before you apply for your loan – which you can do for free via Equifax – can help you understand your financial position," says Luke.
Being aware of the actions that could affect their credit record is also something first home buyers should keep in mind.
"Applying for multiple loans, missing repayments, not paying bills on time or even having an overdraft on your account can lower the score on your credit record," says Luke.
Major lenders may immediately decline a loan if there have been too many home loan applications in the last six months or if there's a default on file.
If this has happened to one of your kids, they should spend time improving their credit file, which will put them in a better position before applying for another loan.
A common mistake many first home buyers make is only factoring in the property's price tag when setting their budget. As a result, they can sometimes fall short when it's time to make an offer.
Fees such as those for conveyancing and legal, as well as building inspections in the lead up to a purchase must be considered as part of the overall investment.
"Being aware of all of the up-front costs ahead of time will help you set your budget appropriately, and understand the price range you play in before you start looking at properties," says Luke.
Be aware of how your 20 per cent deposit is viewed
The recent re-introduction of LVR rules means that most first-home buyers will be hard pressed to secure a loan with anything less than a 20 per cent deposit. Luke says this is where the Bank of Mum and Dad most commonly comes into play.
"With higher deposits required, buying a house may be out of reach for many people's budgets, and so parents will often help make up the difference," says Luke.
Supporting kids with a cash gift to supplement their deposit is an avenue that an increasing number of parents are following, but it’s worth bearing in mind that many lenders have restrictions around this.
"Major banks and lenders have differing policies when it comes to gifting and total required deposit levels with some requiring a portion of deposit to be genuinely saved over a period of time. Which means purchase plans may be potentially delayed if there is a reliance on gifts."
For buyers who have less than a 20 per cent deposit, or who are relying on cash gifts, Luke advises not giving up, and exploring other options that might be available.
"Explore new schemes and structures that might make buying a possibility, and speak to the Resimac team about options that may work for you. Because we work on an individual basis, we can offer more flexibility to first home buyers than they might get from another lender."
Put your best foot forward
A strong income doesn't necessarily mean approval for a loan. Lenders will assess overall financial position, taking into account assets and income, as well as any debts and liabilities.
"A lot of lenders look at your living expenses and count your one-off spends as a monthly expense," says Luke.
Luke suggests considering all options when it comes to credit cards. While it may not be necessary to cut them up, look at lowering the limit and make sure all existing debts are paid on time.
Showing consistent savings will also help present a financial situation in the best possible light, especially with less than a 15 per cent deposit.
Finally, Luke advises doing research into the whole application process before applying to have the strongest position possible and avoid nasty surprises along the way.
"Figure out how much you want to spend, the deposit you have available and what the end goal is. Be prepared to provide documents and have a look at your credit file to be in the best possible position before applying for a home loans," he concludes.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Resimac. The above is general commentary only and is not advice tailored to any individual's financial situation. We recommend seeking advice from a finance professional before implementing changes relating to your finances.