Using KiwiSaver to buy your first home: how it works
Saving a deposit can be hard for first home buyers. Luckily, KiwiSaver and other schemes can help you out.
Perhaps one of the most daunting parts of the first home buying process is working out how you'll get the money together to pay for a deposit. Saving for a deposit can seem like a mammoth task, especially in rising property markets where the amount you need is a continuously moving target.
To be successful, you'll need to plan carefully, save hard and think smart. And a great place to start is being aware of the schemes that exist to help New Zealanders but their first house.
In this article, we'll focus on one of these initiatives – using your KiwiSaver to help with your first home deposit. We'll also explore how the First Home Loan scheme works, so you can ensure you're not working harder than you need to secure your deposit.
KiwiSaver First home withdrawals vs. First Home Grants
There are two ways Kiwisaver can be put to use for first home buyers:
1. KiwiSaver: first home withdrawals
This involves simply withdrawing funds from your KiwiSaver and putting the money towards your first home deposit. To be allowed to do this you must:
- Be a first-time property or land owner.
- Have been with KiwiSaver (or another complying superannuation fund) for at least three years.
- Be looking to buy property or land that's in New Zealand.
- Intend to live in the home you're buying, or build the home you're going to build on the land you're buying.
- Not have used a KiwiSaver withdrawal to buy a home before.
Using KiwiSaver can make the maths on buying your first home a little less scary.
How much can I withdraw?
If you meet these requirements, you can withdraw any amount from your KiwiSaver, provided:
- There's at least $1,000 left at the end, and
- You don't withdraw any amounts transferred from complying Australian super schemes.
You'll also be unable to withdraw Government member tax credits received during anytime spent overseas when you didn't have NZ permanent residence since you joined KiwiSaver.
How to apply for KiwiSaver withdrawal
Your KiwiSaver manager will be able to give you a first home withdrawal application form, and an eligibility letter to prove you're allowed to withdraw funds from your KiwiSaver. You'll need to present this letter, along with an estimate of how much you'll be able to withdraw, when you apply for home loan pre-approval.
You'll then want to apply for your first home withdrawal nice and early, once you've found the house or piece of land you want to buy (your KiwiSaver manager will need all documents at least 15 working days before payments are due). From here, as long as you're eligible, you can either:
- Put the funds towards your home deposit while the sale and purchase agreement is still conditional
- Once your offer becomes unconditional, put your KiwiSaver towards the purchase price at settlement.
Note: you should run any important documents, such as your first home withdrawal application form, past your solicitor so they can help you complete it.
The KiwiSaver first home withdrawal can’t be paid out after settlement day, so if it isn't processed before the sale is settled, you’ll miss out.
Your KiwiSaver manager will help you apply for your withdrawal.
2. KiwiSaver: First Home Grant
To be eligible for a First Home Grant, you must:
- be over 18 years old.
- not currently own property.
- have earned less than the income caps in the last 12 months.
- have been contributing at least the minimum amount to KiwiSaver (or complying fund or exempt employer scheme) for at least three years.
- be looking to purchase a property within your regional house price caps.
- agree to live in your new house for at least 6 months.
- ensure the house or land you're looking to buy meets the property requirements.
You can learn more about these eligibility requirements on the Kāinga Ora website.
How much is the First Home Grant worth?
The First Home Grant is worth different amounts depending on your situation. It can be added to your savings to make up the 10% deposit of the sale price that is needed to buy using the KiwiSaver first home buyer scheme.
If you’re buying an existing home, the First Home Grant can be between $3,000 and $5,000, based on $1,000 per year of KiwiSaver contributions.
If you choose to build or buy a brand new home, or land to build on, the grant is doubled to $2,000 per year of KiwiSaver membership, a maximum of $10,000 for five years per member.
If you're eligible for the First Home Grant, the amount you can access will depend on your circumstances.
How to apply for the First Home Grant
You have two options for how the process can work, either:
• You can wait until you’ve got a signed sale and purchase agreement, and then apply for grant approval.
• You can apply for pre-approval before your start looking for a home.
Kāinga Ora handles the applications and they recommend the second approach, because it make things faster. Once granted, pre-approval is valid for 180 days.
Either way, you need to it sorted well before settlement date, ideally at least four weeks ahead of time. As with the KiwiSaver first home withdrawal, the First Home Grant can’t be paid out after the settlement date.
The First Home Loan scheme
If you take out a First Home loan (previously Welcome Home loan), you can reduce the standard 10-20% deposit required by most NZ lenders to 5%.
The First Home Loan is offered by a number of normal lenders including Westpac, and is supported by Housing New Zealand which underwrites the loan.
To be eligible for the First Home Loan scheme, you must:
- be earning less than the income caps ($85,000 before tax for one person, or a combined $130,000 before tax for two people) in a year.
- be buying a house less than the regional price cap.
- be a first home buyer, or in a financial position similar to a first home buyer.
- have 5% of the purchase price of the house you want to buy.
- not own any other property.
- intend to live in the home you're buying.
You'll need to check the eligibility criteria if you're going to apply for the First Home Loan.
How much is the First Home Loan worth?
How much you can borrow is capped, and this amount depends on where you live. For example, Aucklanders will have a higher cap than provincial residents. So, the maximum you can borrow is house the price cap for that region, minus your 5% deposit.
How to apply for the First Home Loan
Once you've checked you're eligible, choose a lender and get your 5% deposit together.
Next, you'll need to fill in the lender's loan application. Each individual lender will have their own criteria that you need to meet, as well as the Government's First Home Loan eligibility we discussed.
From here, you have two options:
1. Apply for a First Home Loan pre-approval:
This shows you meet all the necessary criteria, and the lender will be able to tell you how much they will lend. Once you've found a house within that price range, you can return for final loan approval.
2. Apply for First Home Loan final approval:
If you already have your eye on a property, you can apply for final approval. The lender will need to check that both the house and your circumstances meet their lending criteria.
*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice.
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