Buying your first home is an exciting milestone, but it can also be overwhelming and stressful. As a first home buyer, there are many things to consider and decisions to make. It is important that when you’re navigating the purchase of your first home, to consult with a lawyer as they can help break down the process for you and interpret the legal jargon. In this brief guide, we will provide you with some tips and advice to help with buying your first home.
Step 1. Assessing your financial situation
Before you start looking for a home, you need to know how much you can afford. Make use of online mortgage calculators which can give you an idea of how much you can borrow for a home loan, based on the amount of savings you currently have. In addition to your savings, consider what options may be available to you to assist with your deposit, including the KiwiSaver First Home Withdrawal and the Kainga Ora grants and services. Brief summaries are provided below, with full information (including terms and conditions) about these options found at https://kaingaora.govt.nz/home-ownership/
- KiwiSaver: if you have been contributing to KiwiSaver for more than three years, you may be eligible to withdraw your KiwiSaver funds to assist with your purchase.
- Kainga Ora First Home Grant: a government contribution of up to $10,000.00 per person to assist with your purchase.
- Kainga Ora First Home Loan: several banks are participating members of the First Home Loan scheme where they allow a 5% deposit of the purchase price of the property, rather than the standard 20% deposit requirement.
After assessing your financial situation, it’s time to contact a mortgage broker or bank to seek a pre-approval for a home loan. They will assess your financial situation and the affordability of a home loan based on your circumstances. They will then be able to provide you with guidance if they require further action from you, such as a few more months of savings, or they will be able to provide you with a pre-approval for a home loan. Once you have your pre-approval, you will know exactly how much you can potentially borrow and spend on a home.
Step 2. Do your due diligence
Research is key when it comes to buying a home. You need to know what you want, where you want to live, and what you can afford. Make a list of your must-haves and nice-to-haves, and research different areas to see which ones meet your criteria. Use online resources such as TradeMe and Realestate.co.nz to browse listings and get an idea of what’s available within your price range. When you find properties you like, go to the open homes or arrange a viewing. Once you have found a home you are seriously interested in, that meets all your requirements, it’s time to move onto the next step.
Step 3. Find a lawyer and make an offer
When you’ve found the right home, it’s time to make an offer. This is when you will want to consult with a lawyer such as any of the property team at Lewis Lawyers. They will be able to check the property’s Record of Title and provide advice on conditions that should be included in your offer on the property. Your lawyer can liaise between you and the real estate agent to ensure the Agreement for Sale and Purchase of Real Estate (Agreement) includes all the conditions required for your situation and protect your best interests.
Step 4. Conditions
There are an endless number of conditions that can be included in an Agreement, but some of the most commons conditions are finance, builder’s report and LIM report.
Finance: A finance condition allows a set amount of time for you to be able to seek final home loan approval from your broker or bank for the purchase of the property you are interested in. This provides a safeguard so that if the bank is not willing to provide you with the amount of lending needed, then you are able to cancel the Agreement. It is important to note that even if you have “pre-approval” from the bank, you will still need to have a finance condition in the Agreement as the bank will not provide final approval until they are satisfied with the Agreement and the property you are purchasing.
Builder’s report: A builder’s report allows you to seek independent advice about the property in regards to the structural integrity of the home and can identify any maintenance or repairs that are required. If any significant issues are identified, your lawyer can negotiate with the vendor’s lawyer to have the issues fixed, provide a price reduction or give you the option of cancelling the Agreement.
LIM report: A Land Information Memorandum (LIM) is a report prepared by the local council which includes a summary on the property of the current information held by the various departments within the local council. A LIM provides a significant amount of information relating to the property including:
- Permits, building consents or requisitions, and other certificates previously issued by the local council or building consent authority.
- Zoning – how the land can be used.
- Any notices to the council by any statutory organisation that has the power to classify land or buildings for any purpose.
- Any notices to the council given by any network utility operator under the Building Act.
- Information relating to stormwater or sewage drains.
- Special features of the land such as erosion or flooding prone areas.
- Rates information.
- Any other information that the council thinks is relevant.
A precaution with LIM reports is that not all information on the property may be included if the local council have not been notified of the information, such as if the home has a weathertightness issue or building works have been completed without obtaining a building consent. If there is any aspect of the property that you think should have been included in the report that is not (e.g. unauthorised works), you would need to contact the local council to discuss these concerns to ensure you have all the required information and ensure you are comfortable with satisfying the LIM report condition.
If all your conditions are met, you can instruct your lawyer to make the agreement unconditional. This means the agreement is locked in and you need to pay the deposit (the deposit amount is listed in the Agreement and can be negotiated at the offer stage. Generally, it is 10% of the purchase price).
Step 5. Signing documents and waiting for settlement
Once all conditions have been met and any issues have been addressed, the countdown is on for settlement day where you can move into your home. Before settlement, your lawyer will arrange a meeting with you to sign all the necessary documents. These include loan documents from the bank and supporting documents relating to Land Information New Zealand and Inland Revenue. Your lawyer will go over the documents with you and explain your interest rates, repayments, priority sum and your obligations as a borrower. Remember to ask your lawyer to explain any parts you do not understand and ensure you are fully confident in what you are signing.
Step 6. Settlement day
Settlement day is exciting, and you are likely all packed up and ready to go. This is the day where your lawyer will pay the purchase price for the property, on your behalf, to the vendor’s lawyer and transfer the Record of Title into your name. Your lawyer will endeavour to get settlement completed as soon as possible, however there can be delays that are outside of their control, including waiting for the funds to come from the bank or waiting for the vendor to vacate the home. Rest assured, they will contact you as soon as possible and notify you when you can collect the keys to your new home.
Buying your first home can be daunting when you don’t understand the ins and outs of the process, however with the help of a lawyer, the journey doesn’t need to feel so overwhelming. This article is intended to be used solely as a broad overview of the process for purchasing a first home and does not provide complete advice for each individual’s situation. For full advice, please contact our property team who can provide expert assistance and guidance on your unique situation.
