Making an offer when you are a low deposit first home buyer

More and more people are buying their first home based on recent data. While this is awesome, it has flow on effect to the process of getting a mortgage approval. Due to the Reserve Bank restrictions, banks have limited low deposit loans to give out. Add to that the high workload of the banks for processing mortgages has meant getting “pre-approved” without a live (written offer accepted) Sale & Purchase agreement has been difficult.

At the present time, often Banks won’t assess/pre-approve applicants till you have a ‘live’ sale & purchase agreement. But as Mortgage Advisers, we can still pull all the paperwork together to get a specific idea of borrowing power before you make an offer.

There is possibly the option of the Kainga First Home Loan for pre-approval, but there are strict criteria. For example, you need to have been in your job for at least a year (2 full years financials if self-employed). If you have been in your job less than a year, we would need more background info on what you do now and what you did in the job prior (hopefully similar roles!), and for how long, to see if we can get an exemption to this requirement.

Making a start on the application paperwork is also advantageous. This includes contacting your KiwiSaver provider(s) to get a letter/email confirming how much you can withdraw. They can usually send you that quickly and that document is part of your proof of deposit in a lending application.
Don’t stress about trying to get it (KiwiSaver) out right now, you can’t start that process (with your lawyer help) until you have an offer pending and are likely to go unconditional with a purchase.

Provide your mortgage adviser all the necessary forms, proof of ID, payslips, bank statements (from all accounts and debts) for the last 3 most recent months. Just check you haven’t missed any credit cards, overdrafts, store cards/lay-bys in the form.

In terms of the lawyer, seek out a lawyer early on, find out their terms of engagement/cost, let them know you are using KiwiSaver as part of your deposit. Then have them on standby.

You potentially don’t need your lawyer to review the Sale & Purchase agreement before you place an offer. That is because your offer as a first home buyer, low deposit, will be heavily conditional (which can include a condition pertaining to your lawyer authorising/approving the agreement and title search). If in doubt, have your lawyer review the agreement first.

Just make sure you don’t have money tied up in a term deposit and perhaps move KiwiSaver funds from a Growth to a Conservative fund to minimise fluctuations. (chat to your KiwiSaver provider for this), Look out for sitting tenants that may cause a lengthy settlement that could affect approval expiry timelines.

Placing an offer:

1. Once you decide to go for the house, tell the agent you are a first home buyer, with less than 20% deposit, and you want to place an offer, but it will need conditions.
2. The agent usually prepares a Sale & Purchase agreement for you, they will need to know your full legal names, address, phone, offer price, deposit (down payment usually 10% which you have available readily), lawyer details and settlement date **settlement date is when all money gets handed over and you get the keys, don’t make this too soon or too far away for logistical reasons, e.g. 5 – 8 weeks away from signing the contract is perfect

Typical conditions on the offer (Agents will usually have pre worded clauses):

**Note the timeframes and conditions may change depending on your circumstances

1. Subject to finance – 10-15 working days ***as soon as your offer is accepted, send your mortgage adviser a copy of the final agreement – they then need to order the valuation in a certain way (cost around $1000) and can take 5-7 days to get done. A valuation order link gets sent to you to pay, the valuer picks up the job from the banks’ panel, he calls the agent to arrange a visit, then does a report
2. Subject to satisfactory builder’s report to the purchaser – 10 working days (optional but recommended)
3. Subject to satisfactory title search 10 working days (lawyer does this)
4. Subject to satisfactory council LIM report 10 working days (optional but recommended, sometimes lawyer supplies)
5. Subject to purchaser obtaining satisfactory insurance quote within 10 working days
6. And if required, subject to lawyer checking and approving of the sale & purchase agreement 10 working days**Try and avoid letting the agent slip in a ‘better offer / cash out’ clause in the condition page that would let someone else come along and have an offer accepted ahead of yours while yours is pending.
   Be wary if there are sitting tenants as it can take 90 days for them to vacate which can fall outside approval time frames.

   Fees Budget Approx:
   Lawyer $2k-3k on average
   Building report – depends on company, $700-$1200
   LIM report – depending on council – around $400 (or view file in council for no charge usually)
   Valuation – depending on location and complexity around $1000

Call Craig Pope for impartial advice 7 days a week for more information.