Can I get a home loan with 10% deposit?

Stuff’s money editor Susan Edmunds answers finance questions from our readers.

I have heard that the housing market is starting to pick up again, with prices rising a bit. I’d like to buy my first home before things shoot out of reach again, but I only have a deposit of about 10% at the moment. How hard is it to get a loan with that sort of money?

There are two answers to this question.

The first is that it should be pretty easy to get a loan with 10% — or even 5% — deposit, if you qualify for the First Home Loan scheme. These loans are underwritten by Kainga Ora, so they don’t have to fit within banks’ normal lending rules.

To qualify as a couple or parent you need to earn $150,000 or less a year — or $95,000 if you’re a single person with no kids. You need to not own any other property and must be buying a house to live in. You still need to meet the lending criteria of the bank you apply to.

Mortgage broker Glen McLeod, of Edge Mortgages, says, if you don’t meet the criteria for those loans you may still be able to get a loan with 10%.

“It’s not too bad, with caveats. If you’re going with your own bank in some cases they’ll enable you to get a preapproval.

Susan Edmunds is Stuff’s Money Editor. Send your questions to: susan.edmunds@ stuff.co.nz

“If you’re trying to do it with another bank it usually has to be a live deal – with a signed sale and purchase agreement subject to finance or looking to go to an auction to buy there,” McLeod said.

“The deals are happening.”

He said banks had reduced their servicing criteria a bit, so they were no longer requiring borrowers’ to have quite as much surplus in their budgets.

Just keep in mind that if you don’t have 20% deposit you may have to pay a low-equity fee or margin, and you may not be able to qualify for special interest rates.

Even the First Home Loan scheme comes with a 0.5% lender’s mortgage insurance premium.

If you’re close to having 20%, you might want to consider whether you could afford to wait and save up – most predictions aren’t for house prices to rise spectacularly quickly so you may not be markedly worse off if it takes a few more months to get to your goal. It should be noted that my crystal ball is firmly murky here though.

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