Planning your home loan mortgage deposit

Save for a deposit

Get your deposit together

Let's talk deposits; how you can build it, how much you'll need for your home loan and what happens if you don't have enough?

Buying a house is a life changing moment. It could be the biggest investment you make, and it all starts with saving for the deposit. Finding out how much you’ll need to save for your deposit and putting a saving plan in place is the first step on the road to home ownership. Before you start building a deposit, use the Tella affordability calculator linked below to work out how far your income will take you and what sized loan you can afford to service.

This will help you put a savings plan together, allowing you to think about what locations work for your price range and how far off your new home you are in terms of timeframes.

Putting together your home loan deposit

There are a number of ways you can piece together a deposit (check out our guide below on using KiwiSaver, Kāinga Ora first home grants and first home loans to buy your first home):

Cash Savings: The main and most important contribution are your cash savings. This is income put aside over a period of time.
KiwiSaver: It is possible to withdraw much of your contribution towards KiwiSaver so long as you are using it for the purchase of your first home.
Kāinga Ora: The government offers both a first home loan and a first home grant by way of its social housing agency, Kāinga Ora.
Family Loan or Gift: Family assistance, often in a form of a loan or gift.

How much deposit do I need for a mortgage?

Some lenders only require a 5% deposit for first home buyers but it's important to note that this comes with conditions to be met and it's more common today to expect the minimum first home deposit to be 10%. It’s also important to understand that if your loan is over 80%, you will likely incur a higher interest rate.

Why will a larger deposit save me money?

The higher the deposit, the less you need to borrow to buy your house. It also means a lower interest cost. A big deposit shows lenders that you’re a good saver and able to manage your finances, which may improve the likelihood of them approving your home loan.

What is loan to value ratio?

Your LVR is the amount of the loan divided by the purchase price (or appraised value) of the property. For example, if you're buying a $600,000 house and you have a $450,000 loan, your LVR would be 75%. The bigger your deposit, the lower your loan to value ratio (LVR).

What are Low Equity Premiums or Margins?

If your LVR is above 80%, you usually have to pay a Low Equity Margin in addition to the standard interest rate. This will remain in place as long as you are borrowing more than 80% of the value of the property. It can be removed when either:

You repay enough of the loan to drop below 80% LVR, or
The value of the property has risen

Start saving your house deposit early

Once you know how much you need for a deposit, put a savings plan in place. If you are buying a house with someone else, make a savings plan together. The sooner you start the better. Banks take into consideration spending behavior and like to see a reflection of your credit character represented in your spending history, so consider how you spend as well as how you save.

How long does it take to save for a house deposit?

Saving for a house deposit does take time and it's important to be realistic about how long it may take. The amount you need will depend on housing prices where you want to buy. Remember, you’re saving for one of the largest purchases you’ll ever make, so having a good savings plan and sticking to it will help you reach your goal sooner.

Why should I prepare a budget?

Preparing a budget sets the scene for what’s affordable, what personal changes you may need to make around spending and saving and how long it will take to achieve your savings goal. If you're planning to buy a house with a partner, doing this together is important. Prepare a budget so you can see:

what money is coming in and going out of your account each month
how much you can afford to save each pay day
where you can cut back spending and increase your savings

Automate your savings

Consider setting up an automatic payment from the account your wages go into, to a savings account each pay day. Or ask your employer if they can send part of your pay directly into your savings account. Automatic transfers let you 'set and forget'. You can grow your savings without having to worry about transferring money each pay.

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