For many first home buyers who were planning to buy their first property in the not so distant future, it feels as if the rug has been pulled from under them with all that has happened as a result of the current Covid-19 pandemic.
With the economy under pressure, many experiencing job losses and KiwiSaver funds taking a nosedive there are many who need to defer their plans to buy their first home – at least for the short term.
Despite uncertain times, there are a number of things that our would-be first home buyers can do take back some control of their financial situation in order to improve their chances for a loan approval at some stage in the future.
There are several factors that are considered when you are looking to finance the purchase of your first home and these include:
• Credit history
• Account conduct (personal financial management)
Most first home buyers use their KiwiSaver funds to assist with their first home deposit and as a result of the current economic state, many have taken a huge hit which has resulted in a lower deposit. Whilst we can’t control what is happening in the economy, looking to the future is all we can do. Therefore, growing your deposit in the short term will get you closer to your dream of owning your first home.
You may consider increasing your KiwiSaver contributions from the minimum to a higher level to act as a forced savings plan for your future home deposit. Or, if your financial position allows it, you may just choose to start a personal savings plan. Having a history of savings, be it your KiwiSaver contributions or your personal savings, shows the banks that you are committed to your home ownership goals.
Each bank has their own affordability criteria which assesses your income in respect to your liabilities, expenses and future repayments. Short term debt has a considerable impact on an application and so it is always a good idea to repay or at least minimise any personal debt. This includes credit cards, personal loans, car loans, hire purchase, overdrafts etc. The more personal debt you have, the less income is available to meet future mortgage repayments. Demonstrating your ability to reduce debt is seen to be favourable to the banks.
Scrutinise what you spend your money on. By doing this you will potentially be saving yourself money. This could be cash to go towards your deposit or to pay down your personal debt. Just remember, that when you are ready to apply for a home loan we will be providing your last three months of bank statements with your application and the bank will be reviewing those in detail.
This leads to the very important task of managing your account conduct properly. In order to give you the best opportunity for a loan approval, you need to ensure that you manage your finances well. This includes paying all your bills and payments on time to avoid late payment fees or defaults. Ensure that your credit card doesn’t go over it’s limit or that your bank accounts don’t go into unarranged overdraft.
Having sufficient deposit funds is a major factor for all first home buyers, but the other aspects of your financial position also have a big impact and are worth addressing to improve your chances of that future loan approval. At this point in time the banks haven’t made any changes to their lending criteria nor has the reserve banks changed their policy for over 80% LVR lending. However, these may be some of the measures the Reserve Bank may consider in order to make life a little easier for first home buyers in these unprecedented times. So, you need to be in contact with Emma and Darrin, or keep an eye on our social media to know what’s changing in the market place.