First-time buyer’s guide to getting a mortgage

The time is right for first-home buyers to strike – but how?

With house price rises tapering off in many areas and the number of houses being sold dropping by up to 30 per cent, the conditions are better for would-be homeowners than they have been in years.

Data suggests many have realised that fact. Some $818 million in lending went to first-home buyers in March and $630m in April, up from $561m in April 2015.

‘‘Prices levelling out, and even falling in some places, is obviously good news for those who have struggled to get on the housing ladder,’’ said Jose George, general manager of research house Canstar. ‘‘But it’s important that buyers make sure they are properly prepared before they try and enter the market.

‘‘The obvious place for people to start is looking is at mortgage providers, the rates they offer and the services they provide.’’

According to Canstar’s online comparison tables, the difference between the highest and lowest advertised two-year fixed-rate home loan for first-home buyers with a 20 per cent deposit is 70 basis points. In dollar terms, this could mean paying an extra $142 per month if servicing a $350,000 loan over a 25-year period.

Mum-and-dad investors

Financial adviser Liz Koh said some first-home buyers would benefit from an offset facility – where savings can be offset against a loan balance to reduce the interest bill.

This means they can still save money for a holiday while paying off their loan balance at the same time.

Koh said it was also worth reading the fine print. ‘‘If it’s a lower [interest rate on offer] it’s probably a bank with a higher credit rating, but you don’t want to get caught in a situation where the bank has its funds frozen overnight.

‘‘I’m always amazed how many people don’t know what the credit rating of their bank is.’’

Gather evidence of your income and outgoings. Lenders can offer a lot more support and, in some cases, a better deal if they have a clear picture of your financial position. If you plan to use funds in your KiwiSaver account for a first house, you will need to provide statements for that too.

Know your budget. This might sound like an obvious one, but it’s easy to fire up an online calculator and get carried away about what you can afford. You might not be paying rent in the future, but on top of your mortgage repayments, you will also need to shell out for utilities and insurance. Day-to-day living costs such as food and travel also need to be included.

Research the market and the area where you are looking for a property. Is the area at risk of flooding? Is there future development planned in the area? Will you need to commute to work? Are there schools and shops nearby?

Do your homework on the house. This should include (but not be limited to) land title searches and builder’s reports.

You’ll need legal representation. Usually not until you sign contracts, but it is an expense to keep in mind.