Stage 1: How to Build Your Deposit and Prepare for Your First Home

Stage 1: How to Build Your Deposit and Prepare for Your First Home

If you’re looking to enter the property market, your journey begins here. Stage 1 focuses on becoming mortgage-ready, with building your deposit being the most crucial step.

What Deposit Do You Actually Need?

In New Zealand, the size of your deposit significantly influences:

Stage 1: How to Build Your Deposit and Prepare for Your First Home
  • Which lenders you can access
  • The interest rates available to you
  • The flexibility of your loan structure

5% Deposit (First Home Schemes)

In some cases, you may be able to purchase a home with just a 5% deposit, often through:

  • Kāinga Ora / First Home Loan schemes
  • Selected lender-supported programmes

Keep in mind:

  • Eligibility criteria can be strict (income and property price caps)
  • Options may be limited to certain lenders
  • A strong financial position is required (stable income, good credit)

This option can help you enter the market sooner, but it necessitates careful planning and guidance.

10% Deposit

A 10% deposit is a common entry point for many first-home buyers, offering:

  • More lender options compared to a 5% deposit
  • Subject to some lending restrictions
  • Potentially slightly higher interest rates or tighter conditions

This is often a practical middle ground that allows you to enter the market sooner while maintaining reasonable flexibility.

20%+ Deposit

Having a deposit of 20% or more places you in a strong position, providing:

  • Access to a wider range of lenders
  • More competitive interest rates
  • Greater loan structure flexibility
  • A stronger negotiating position

If you can reach a 20% deposit, it can significantly enhance your long-term financial outcomes.

How to Build Your Deposit Faster

  1. Use KiwiSaver Strategically
    • You may be able to withdraw most of your KiwiSaver balance (excluding $1,000) to contribute to your deposit.
    • Stay informed about government support schemes like the First Home Grant, which may be available depending on eligibility and current policies.
  2. Set a Clear Savings Plan
    • Create a dedicated deposit account.
    • Automate regular contributions.
    • Set a clear target (e.g., 10% vs 20%).
  3. Consider Additional Support
    • Family gifting can be a helpful resource.
    • Planning for potential boarder income can assist with servicing your mortgage.

What Lenders Are Looking for (Before You Apply)

Even at this early stage, lenders will assess:

  • Income stability
  • Existing debts (like credit cards and personal loans)
  • Spending patterns
  • Credit history

Preparing these aspects early can lead to a smoother approval process when you’re ready to apply.

Common Mistakes to Avoid

  • Waiting too long for a 20% deposit without exploring other options.
  • Not understanding eligibility for 5% or 10% lending.
  • Ignoring how lenders assess your finances.
  • Taking on new debt before applying.
  • Not seeking advice early in the process.

Why Early Mortgage Advice Matters

Even at Stage 1, consulting with a Mortgage Adviser can be beneficial. A knowledgeable adviser can help you:

  • Determine whether a 5%, 10%, or 20% deposit is realistic for you.
  • Identify the best pathway based on your individual situation.
  • Estimate your borrowing capacity early on.
  • Create a clear and achievable timeline.

Having a structured plan can empower you to move forward with confidence.

A Note on Risk and Preparation

As you prepare for a future mortgage, consider the sustainability of your financial situation. Your ability to maintain homeownership long-term relies on your income and overall financial stability. A simple plan to manage unexpected changes can help ensure you stay on track toward homeownership.

Which Stage Are You Currently At?

If you’re in Stage 1, you’re already on the right path. The key is not just saving, but saving with a clear strategy. Whether your goal is 5%, 10%, or 20%, the right approach can significantly reduce the time it takes to reach your deposit goal.

Disclaimer

The information provided in this article is general in nature and does not take into account your personal situation, objectives, or needs. It should not be considered as personalised financial or investment advice. Before making any decisions, it is recommended that you seek independent professional advice relevant to your circumstances.