Looking to buy your first home, but have no idea where to begin? In this blog, it’s all about how to buy a first home while building your support team. It is critical that you have the right people behind you, because trying to do it all yourself is overwhelming and potentially opening opportunities for mistakes to happen! As a mentor once said to me, you don’t know what you don’t know!
So, how do you go about buying a first home? Well, the first step is to find out how much you can borrow and what you can afford. That is where a mortgage adviser will come in handy, as that is the first step in the process. The mortgage adviser or broker will start the pre-approval process once they have met you. I’ve written an article on what a typical pre-approval process looks like here. Also, here are 7 steps on how to apply for a home loan for your first home here.
I’m going to be sharing my tips on how to seek and build out the best support team for you during this whole process. Think of yourself as the captain on the team and you need to select your team players.
How To Buy A First Home With Your #1 Support Team?
Below is a list of typical professionals and tradespeople that you’ll need when buying a home. After their profile description, I’ll mention their costs in the last paragraph.
So the first team member to start us off and your first point of contact is a Mortgage Adviser or Broker.
Mortgage Adviser or Broker
Why do you need a mortgage adviser? They’ll help guide you through the process of getting your finance. Having a mortgage adviser will save time and money in the long run.
A great mortgage adviser will first get to know your financial needs and wants and how best to tackle getting you an approval. Every banks policy is different, so trying to understand all the banks out there will drive your head into the ground. It’s like reading insurance documents! They’ll also know which banks will be offering the best interest rates and cashback for you. You want to avoid going to all the banks to get an approval and pitting them against each other, as this could impact your credit rating and give the perception that you're just wasting their time.
If you’re buying with less than 20% deposit, then each bank will have their own policy for first home buyers. An example is one bank will lend on 5% deposit if you’ve got the First Home Grant, whereas another bank will only lend to a maximum of 90% LVR, i.e. only 10% deposit. I’ve written an article here with the hidden cost of buying a first home with less than 20% deposit. Even though the Reserve Bank of New Zealand removed LVR limits back in April 2020, the retail banks still have their own rules! It’s not as rosy as people may think.
A mortgage broker will work out the following for you:
- How much you can borrow
- What deposit you require as different property types require different deposits, such as bare land vs existing property
- What the expected mortgage repayments are
- Different types of home loan bank products i.e. Revolving credit facility vs offset facility
- Assist with getting your First Home Grant
- Solutions to increasing your borrowing compared to a bank!
Lastly, most mortgage advisers and brokers will not cost you anything as they are paid commission by the bank. It is best to be upfront with asking them on how they get paid, as you don’t want any surprises!
Solicitor or Lawyer
Having a solicitor is very important as they’ll look over contracts and LIM reports for you. They basically cover you legally and contractually. It is also recommended to get them to look over the Sales and Purchase Agreement before signing anything.
The solicitor will also help with your Kiwisaver too, as they are involved with receiving the funds from Kiwisaver into their trust account which can be used towards the deposit of your first home.
Finding the right solicitor will save you from too much headache, especially when you’re looking at titles or LIM reports where you're not too familiar with the technical terms. A great solicitor will break down the jargon and give you confidence on the property that you’re buying. Every council will have their own LIM reports, for example - Auckland City is here.
You can get recommendations from friends or family. You can even get recommendations from your mortgage adviser as they have worked with solicitors near the final stages of the home buying process.
Once you’ve found a solicitor, it may be worthwhile to discuss whether to form a family trust, organise your Will and other matters that will protect you in the future.
Lastly, the cost of a solicitor varies, but from experience can range between $1,500 to $2,500.
Accountant
If you’re an investor, it may be worthwhile looking at getting an accountant. They can provide you with professional independent advice on the tax structure. Secondly, if you’re self-employed, then you’ll need to have financial accounts produced for your mortgage broker.
Recommendations can come from your family, friends and even mortgage advisers as they work closely with them. The cost can vary.
Having a great accountant will provide you with a lot more value, so the money spent here is well worth it. Cheapest doesn’t guarantee great advice.
Real estate agent
There are two types of real estate agents you can seek:
Selling Real Estate Agent
Sometimes known as Sellers Agent, these agents are there to help the vendor (the owner of the property) to get the best price possible from people who are wanting to buy a property. Their goals are not in line with yours, as their goal is to represent the seller.
Buying Real Estate Agent
Sometimes known as Buyers Agent, these agents are here to help you find the property that you want. You’ll give them a criteria to work with, of what type of property you’re looking for. An example is:
- Number of bedrooms
- Locations of Interest
- Decile school zones
- Price
How do you find a buyers agent? You can ask friends or family for recommendations. It is quite uncommon in New Zealand for people to use buyers agent, as most people seek their own. I personally used a buyers agent as it saved me a lot of time!
Most buyers agents are free, but not all of them. It’s always best practice to ask if they have any fees upfront. However, if you’re selling your home, then there are fees associated with the sale which varies on your property.
Builders
When you’ve identified the property you want, you may want to get a building inspection completed. This should be done prior to purchase, especially it’s an old existing home as there may be items that you’re not aware of. This forms part of your due diligence process.
Some builders report can be verbal feedback, which will cost less. However, having a written report completed, although more expensive, will give you confidence with what needs to be fixed if there are issues with the property. The cost varies between $500-$750.
Fire & General Insurance Adviser or Broker
Once you’ve gone unconditional on a property, you’ll need insurance on the house. Similar to a mortgage adviser, there are many products and jargon out there. It's best to seek out a professional adviser that can get you the best insurance policy and cost.
Insurance advisers are critical because not only do they find you the policy that suits your needs, but should you need to make a claim they will fight for you.
Generally, fire and general insurance advisers will cost nothing as they get paid a commission from their suppliers.
Life & Health Insurance Adviser or Broker
The most underrated team player! Life & health insurance advisers are important because it’s all about the risk and getting the right cover of insurance.
You’re willing to get insurance on your assets, such as home and contents, but not on your life? Why? Because human nature kicks in making us think that we will live forever. However, if something happens, it can have a massive impact on your family’s finances if you don't have insurance in place.
Life & health insurance policy wording is like a minefield of confusion terms. Insurance advisers will break it down and find you the right policy that meets your needs, as each policy from different insurance providers covers different things.
Why use an insurance adviser? Well, it’s not just the cost they’ll save you, but also again when it comes to claiming time they’ll fight for you with the provider. We all know how hard it can be even trying to claim anything from insurance providers.
Generally, most insurance advisers are free as they get paid a commission by their suppliers. However, some insurance advisers do charge, so best to ask up front if there are any fees.
Summary - how to buy a first home in NZ
In summary, you need great people around you to give you good advice so you can get the best outcome possible. You don’t know what you don’t know. It’s your first home and so you want to ensure you’re making the right decisions with the right information being presented to you.
You can see a majority of these professionals costs aren’t that expensive when you compare it to buying a home!
You can book in a no-obligation phone call with me below or send me an email will@simplyfinance.co.nz