Mike Pero Real Estate New Zealand -- The Definitive Guide To First Home Buyer Grants
mikepero.co.nz, June 2021
mikepero.com > first-home-buyer-grants-guide
The Definitive Guide to First Home Buyer Grants | Mike Pero
First Home Grants from Kāinga Ora Homes and Communities can help qualifying buyers realise the dream of home ownership even if they don’t have a large deposit. Here’s a guide.
First home buyer grants are programmes and cash contributions offered by the government to help New Zealand residents afford a deposit on their first house. Many mortgage lenders want a 20% deposit, but that may not be realistic for first time home buyers, who often just haven’t had the time to amass that much in personal savings. In these cases, taking money out of your KiwiSaver, qualifying for a First Home grant, or getting a government-backed Welcome Home Loan can help you buy your first property even when you don’t have much of a deposit. Below, we give an informative overview of first home buyer benefits and grant schemes.
What is the first home buyer grant?
A First Home grant, formerly known as a HomeStart grant, is a grant of money given to qualifying home buyers who have never bought New Zealand real estate before. In some cases, they are also available to “second-chancers” who are now in a financial situation equivalent to that of a first-time buyer. First Home grants do not have to be paid back, and joint buyers are allowed to combine their benefits. Grants are available to all qualifying New Zealanders who have been contributing to a KiwiSaver, though terms and property value limits will vary based on where you live. Special First Home Grants are available to Māori wanting to live on Iwi lands, as well as Kāinga Ora residents wanting to buy a tenant property they’re currently living in.
While it’s always worth looking into your eligibility for a First Home/HomeStart grant, note that the price caps on property values can be a bit low. This means that, in practice, these grants are not utilised as often as you might think. If the property you are looking to buy or build on is over the maximum value for a grant, you may still be able to get a government-backed First Home (or “Welcome Home”) Loan, which can decrease your deposit amount. You may also be able to take advantage of your KiwiSaver First Home Withdrawal, which allows you to take money out of your scheme for a deposit on your first house. More on that below.
How much is the first home buyer grant?
How much you will get from a New Zealand First Home grant will depend on the type of property you’re buying and your own financial situation.
For first time or “second-chance” buyers applying for a First Home/HomeStart grant, each eligible borrower may receive anywhere from $3,000 to $10,000 -- up to a maximum of $20,000 for jointly-purchased development property by applicants who have paid into their KiwiSaver for at least the past five years. The rule of thumb is you are eligible to receive $1,000 per year that you have contributed to your KiwiSaver, as long as you have done so for at least three years. Kiwis who have owned a home before, but do not currently, may still be able to use their First Home Withdrawal if they have never used it before. Eligibility for “second-chancers” will be based on their financial situation.
If you’re taking money out of your KiwiSaver as a First Home Withdrawal, you must leave at least $1,000 in your fund, and you must have been making minimum contributions for the past three years. Each KiwiSaver scheme has different First Home Withdrawal requirements, so you should contact your scheme directly to see exactly how much you may be able to take out.
If you have at least a 5% or 10% deposit, you may be eligible for a First Home Loan (previously a Welcome Home loan) through a bank or lending institution. First Home Loans are underwritten by Kāinga Ora - Homes and Communities, and can help borrowers with a more modest deposit get approved even if they don’t have the standard 20% to put down.
Who is eligible for a first home buyer grant?
Both first time home buyers and “second-chancers” -- meaning people who have already owned a home, but currently do not -- may qualify for first home buyer grants in New Zealand. You must be a New Zealand resident, and you may only receive the grant once. If you’re considering a first home buyer grant, you must generally meet the following requirements:
-You must be over 18
-You must plan to actually live in your new property for at least 6 months (up to 3 years for some types of borrowers and properties)
-You must not currently own any property
-You must have earned less than the current income caps -- $85,000 over the last 12 months for a single buyer, and $130,000 over the last 12 months for joint buyers. Both these caps are calculated on before-tax earnings.
-You must purchase a home for a price at or under the current price caps for your region.
-You must have been contributing at least the minimum contribution amount to a KiwiSaver for three consecutive years.
-You must make sure the house or land that you’re buying meets other property requirements as required by your regional grant rules and/or your government-backed lender.
Also, you must usually have at least a 5% deposit saved, in genuine savings, over at least three to six months. However, if you have gifted funds or inheritance funds, these may also be accepted for a deposit. Depending on your own financial situation, you may or may not need to have a guarantor sign to secure your loan if you are using gifted funds for a first home deposit. Note that all of the above requirements are subject to change, so always look at the most current criteria.
Does the home price affect if I can use a first home buyer grant?
Yes -- there are different price caps on first home buyer grant property values. They vary based on region, and whether you are buying existing property or development property. Under the HomeStart scheme, you can only get a first home buyer grant if you are buying property valued at $600k or less in Auckland/Queenstown, $500k or less in other major cities, and $400k in the regions. If you’re buying new or development property to build on, the regional price caps tend to be about $50,000 higher than the above maximums. All of these caps are subject to change, however, so be sure to do your research on what the current maximums are for your specific area.
Can I use a first home buyer grant on an existing property?
Yes, you can use a First Home grant on both existing property up for sale and development property to build on. Grants generally pay out double the contribution for a new build or section purchase. Unfortunately, you cannot apply for retroactive grant funds on a first home that you already own. And First Home grants cannot be used to buy investment properties. If you already own a home that you can no longer afford, you may be able to sell it and then get a First Home grant to use toward a less expensive home -- provided you meet the qualifications. This of course also applies if you have lost a former home due to an inability to pay your mortgage, but are now able to afford a new home. However, all New Zealand residents may only receive a First Home grant once.
Is the application for a first home buyer grant complicated?
No, the application for a first home buyer grant is not terribly complicated. But you will want to get pre-approval before you start looking at properties, because you cannot retroactively apply for grant funds after your purchase has been settled. And you’ll want to apply well in advance of when you intend to make an offer on a home, because applications usually take 2-3 weeks to get approved, even when there are no errors. It’s best to consult a mortgage advisor for loan pre-approval, as they may also be able to help you with your grant application. Unfortunately, even the smallest mistakes can result in further delays.
Note that if you’re applying for a First Home grant and are also using your KiwiSaver First Home Withdrawal, you will need to fill out two separate applications. Nowadays, this can be done fairly easily by downloading the online forms, filling them out, and submitting your paperwork to Kāinga Ora - Homes and Communities. Just be sure to have all the necessary documents ready. Generally speaking, you will need to provide:
-Identification: (a passport, driver’s license, or birth certificate, as well as proof of residence, like a recent utility bill addressed to you)
-Proof of income: (all parties applying for the grant will need to show proof of their total income over the past 12 months, as well as their two most recent payslips)
-Kiwisaver statements: (or statements from a complying fund or exempt employer scheme. You will need to show that you have been making minimum contributions for at least three years)
-Purchase agreement: (not required for pre-approval. You will need a signed copy of an agreement for sale and purchase, or a fixed price building contract
-Proof of deposit: (not required for pre-approval. You must be able to show you have a 10% deposit)
-Proposed settlement date: (not required for pre-approval. You must provide a proposed settlement date/grant payment date that is at least four weeks away).
Do I need a real estate agent or mortgage broker to receive a first home buyer grant?
A good mortgage advisor can help walk you through the process of how to use your New Zealand First Home grant to buy your starter house. A real estate agent generally handles only the sale of property, but they can refer you to a trusted mortgage professional. Even if your desired property exceeds the maximum value eligible for a grant, a mortgage advisor can help you explore other funding options that leverage your status as a first time buyer. Mortgage brokers have access to a wide variety of lenders that offer Welcome Home loans, low-deposit loans, cash gift deposit loans, and more. Whatever your situation, they can work with you to find favourable financing terms on a home or property that is within your budget. If you’re a first time buyer, we would love to hear from you and help you take advantage of the benefits available to you.
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About Mike Pero
Since 1990, Mike Pero Mortgages has been living and breathing the world of property and finance in New Zealand. You could say we know it inside out. We cover every city, suburb and town – from the top of the North Island to the bottom of the South. Mike Pero Advisers process in excess of $1 billion in loans for Kiwis each year and we've helped hundreds of thousands of homeowners and investors achieve their financial goals. Not surprisingly, Mike Pero Mortgages has become a household name and remains the most trusted mortgage broking company in New Zealand. With the support of your local Mike Pero Adviser, you get the advice and motivation needed to realise your property dreams sooner.