8 Quick Hacks to Grow your House Deposit NZ
Buying a house in New Zealand is getting more expensive as the years go by. There are two big issues I normally encounter with people who struggle to buy their first home. One; they do not have enough deposit for their first home. Secondly; they have the deposit, but do not earn enough to afford a mortgage (this is from the bank’s point of view as they calculate servicing a home loan differently). In this blog post, I’m going to concentrate on how to grow your house deposit. In a previous post, I discussed how much deposit you need when buying a home.
One might say time the market, but that could be detrimental advice. Why? Well, tell me who has ever correctly timed entering the market because being in the market is better than out of the market. Not only that. This will be a home you are potentially buying to live and build your life in, not as an investment vehicle. If you are purchasing an investment property, then there are more things to consider such as the numbers, location, what type of property and the purpose. But we can save that for another blog post.
Buying a home is an emotional journey. Some say try to detach from the emotion when purchasing a property. Why is that? I believe that there will always be emotions attached to the process. It would be hard not to. You have spent all the years working away to grow your deposit and increasing your earning power.
Below are my 8 hacks to grow your house deposit NZ
Hack 1 - Increase Your Kiwisaver Contributions
After graduating and landing my first full time job and earning a very modest salary as a graduate, I realised after 6 months that I wasn’t saving much at all and had a timeline in my mind on when to purchase my first home which didn't align. I knew I had to save about 20% deposit to get the best pricing from the banks. So, Kiwisaver is a great way to help save to contribute towards your first home.
If you’re an average saver like me, then this is the best way to go. You won’t even see the money before it enters your bank account as it’s already gone to your kiwisaver. Money you can't see means you can't spend!
Dramatically increase the contributions from the minimal 3% to 8%, or even 10%! I did 8% which was the maximum at the time and deposited an extra $200/week into the Kiwisaver account.
I do want to mention that you will always find ways to make ends meet if you think 8% or 10% is too high. You can maybe try to buy less coffee in a week or go out only once every fortnight. This increase in contributions and the law of compounding will get you to reach your goal quicker.
If you want to know which Kiwisaver fund is best suited for you, talk to a Kiwisaver/investment adviser who can guide you through which fund may suit you. I am personally with Simplicity as my Kiwisaver provider. After much research, it was their low fees that attracted me to use them!
Hack 2 - Budget, Understand Your Expenses.
I know budgeting can be boring but this will help you understand where your money is going. Many people around the world don’t have a budget and can't tell where they are spending all their money.
These days, banks can allow you to export your bank statements into spreadsheets which you can use to sort and track your expenses that way. Start off small. For example, just log how much you spend on food, transport and utilities. That way, you don’t feel overwhelmed and consumed by typing in all your costs. After a while, you will find that you enjoy the process and will want to include other categories such as entertainment, miscellaneous items etc. You will be surprised at how much you spend on eating out and that cheeky bottle of vino!
The key with budgeting is to be disciplined with your money. The banks do notice and favour when customers show a strong history of savings. Therefore, extra points for getting that pre approval or approval!
Hack 3 - Saving Your Increase In Pay And Bonuses
Live like you are earning a graduate salary. You did fine when you started your first job, and expenses should remain quite similar unless you have started a family or brought in other commitments.
Most people would get some sort of pay rise for the year. Some may also be in a fortunate position to get a bonus. If you get a bonus, deposit it straight into a savings account. If it was a pay increase of 2%, then increase your saving rate by 2% by either placing it into Kiwisaver, or a separate savings account.
Using this method you will know as you earn more you also save more, rather than the majority of people who earn more and spend more. After a while, you will get use to living on a sustainable income for a while and reap the benefits in the future!
Hack 4 - Reduce Or Remove Credit!
Live and earn within your means. What does that mean? We live in a world of consumerism and we are trying to out compete each other with who has the latest gadgets or wearing the latest fashion trends. We rack it up on our credit cards and it can spiral out of control. Trust me, it does happen and I have helped many clients who have put themselves with this risk.
Following on from Hack 2 and 3, pretend you are just earning a basic graduate salary. Once you're in that mindset, things will just fall into place when saving for that 20% deposit.
Did you know every $10,000 credit card limit you have could reduce your borrowing capacity by $45,000-$50,000?
Hack 5 - First Home Buyers Grant By Kainga Ora
This is a great initiative by the government to help Kiwis wanting to purchase their first home. I’ve written an article on getting the First Home Buyers Grant.
If you meet the criteria, you could fast track your deposit by another $20,000 (for a couple who are buying a brand new home). Why not take advantage of this!
Hack 6 - Plan, Plan And Plan
If you fail to plan, you plan to fail. Having a plan in place will help you achieve your goals. It will help reduce anxiety when the time comes to purchase your first home too since you’ve been prepared over the years saving up that deposit.
Have a short, medium and long term plan. Your long term plan could be saving enough for the 20% deposit. Then break that down into smaller goals. For example, increase your Kiwisaver contribution to 10% as per Hack 1. A short term plan example could be to find a weekend job and place the earnings straight into Kiwisaver or reduce any outstanding debt.
Hack 7 - Parental Help
If you’re fortunate enough to have parents who can help to boost your deposit, take it. Given that the property prices have boomed over the years, your parents may be more than happy to assist. There are certain things banks look at and it is worth getting good financial advice first both for the parents and the children.
To give you an idea of how much parents have helped their children into their first homes, there was a recent survey indicating that over 60% of first home buyers had some sort of gifting from family.
Hack 8 - Deposit Options
You can purchase a home with a lower deposit. The minimum is 5% deposit, however ideally having 20% would make the chances of getting a loan from the banks more favourable. Having said that, having either 10% or 15% can still get you into a home. I have helped many first home buyers who have less than 20% and managed to get a mortgage from the major banks.
However, you need to ensure that is the right option for you financially. If you want to know more about deposits, contact me via email or book me in for a no-obligation chat.
Summary
Hopefully you got some value out of my 8 hacks to grow your house deposit nz. I would love to hear which hack hit it home for you in the comments section below.
Every situation is different and so making sure you have a plan that fits your financial needs is crucial. If you want to find out more about buying your first home or any of the hacks above, then email me at will@simplyfinance.co.nz or book in a 10 min call with me below.