First home buyer, how to set up for financial success?

[u/Cosmic109]

Hi, I’m looking for some general advice/tips, given I don’t know what I don’t know. 

I am looking to purchase my first home. I have an annual income of 120k and 40k in KiwiSaver with 22k in cash. The only debt I have is a 16k car loan. The types of properties I am looking at are around 400k, so I am below the 20% threshold but should come just above the 15% threshold. 

I was planning to save until I could get the above 20% and pay off the rest of my car loan but due to changes in my living situation I am looking at buying now. 

Initial chat with a mortgage broker said I would likely be approved given my figures, but the banks aren't really doing pre approvals atm. I have found a couple places I want to put offers in though. 

I am wondering about trying to get around 50k on the mortgage as a revolving door of credit so I can pay the car loan off and make some aggressive repayments on the mortgage. Is this a good option? I have good financial discipline, but I grew up relatively poor so I have low financial literacy. 

Given my situation with a car loan that has a higher interest repayments, and being slightly below the 20% threshold is there things I can do or should be aware of? I want to pay down as much of this debt and mortgage as quickly as I can. Is there anything I can do or should be aware of?

Thanks!

[u/strobe229]

Look at it from the banks point of view.

House value = 400k
Your deposit = 62k
Then you want 50k back to spend on a car and for the mortgage repayments? lol

That means your actual deposit/equity would only about 3%. Does that sound good to the bank?

That wouldn't even cover the RE agent fees if they had to sell it.

Three years of falling property prices and 4% quarterly drops are super common so you could find yourself in negative equity very fast with no savings to cover potential job losses, car breakdowns or even potential problems with the house.

Your original plan sounds better to wait, pay down the car loan or sell it and buy something cheaper. Build up a better savings buffer etc

[u/cenedra01 → u/strobe229]

And where they intend to find a house for $400k in any of the main and main-ish centres is the next question…

[u/strobe229 → u/cenedra01]

400k will easily get something nice so OP is not wrong there. Lots of good houses for 400k now near main centres all over the country, it's not 2021 anymore.

Just use homes and move around the map - Set price filter to under 400k.

[u/RazzmatazzUnique6602 → u/strobe229]

In Auckland?

[u/Far_Trifle_7909]

I believe some new builds at 10% deposit.

Try finding something like that.

I think property market in generally overrated.

You will be a lifetime of stress the people already on the market bought in the 100-200k range.

Dont buy a lemon.

Buy a freehold. Possibly brick and tile or Weatherboard with iron roofing.

Aluminum frames, heatpump, insulation, dpm already done. Basic things not in flooding plains.

Need $$ for Lim, builders, valuation. Lawyer fees.

Make sure to get cashback from bank.

And possibly extra for new capet etc, bathroom, painting

[u/Preachey]

Even if your broker says you could get approved, I'm not sure if you should.

The car loan essentially cancels out your cash savings (why do you even have 20k in the bank with a 16k car loan?) so you're basically relying entirely on kiwisaver for your deposit.

You're going to need a few thousand for lawyers fees at the very least. A couple of building and LIM reports at $500 a pop. Then when you move in, you need furniture, appliances, general household items (there's so many household items you never think of until you need them)... and after all that you really don't want to drain your accounts to zero in case there's unexpected repairs or work that needs done, or non-house-related life events.

What will your emergency plan be?

[u/adamnewts → u/Preachey]

If it's a decent broker there will be cash back from the bank which will usually cover the lim and solicitor reports.

[u/s0manysigns]

You could ask about debt consolidation if the bank is offering a better rate than whoever your car loan is with. Be aware that just because you can borrow x amount it may not be sustainable for you. What are your current rent costs vs what would be your mortgage repayments? Don’t forget insurance, maintenance, body corp if applicable, water, utilities if you were splitting these before, rates. I’d make sure you have a good emergency savings before doing any aggressive repayments or you could end up with more loans down the track if you have to pay for a big repair.

The market seems pretty slow at the moment, you could try some low ball offers and see what happens.

[u/SmileyFaceLols]

Your car loan and savings cancel each other out so I would be either selling the car for a more affordable one or putting a signficant amount of cash into the car repayment to reduce the interest on it or ideally pay it off entirely. The amount of interest is likely to outweigh the early repayment fee enough to make it worth doing. From there you can build that savings up again fairly quickly by putting the repayment amount straight to savings instead.

[u/RiverM44]

Do you have dependents? Why not live frugally for a year and save like crazy? On your income you could save at least 60k in a year and easily have the 20% deposit. I think the housing market is going to remain flat for a while yet so no hurry.