Common myths regarding First Home Financing

We as mortgage advisers often hear or see information that is plainly not true. This is a real shame as some people make important decisions regarding their ability to buy a first home based on myths which means that in some cases, they could have bought a home sooner.

There is so much more information available nowadays, and it seems that what is true in other parts of the world is not valid in New Zealand.

 Below are just some of the myths:

 Myth 1: You need a 20% deposit to buy a first home.

This is simply not true. There are deposit options available from as low as 10%, and 5% if you qualify under the First Home Loan Scheme. There could be quite a high opportunity cost involved in waiting to buy only once you have a 20% deposit available, especially in a scenario where house prices are increasing.

 Myth 2: You should always go for the home loan that has the lowest interest rate.

Getting a competitive interest rate is important, but not the only factor that you should keep into consideration when deciding on the best lender or home loan product. You should also consider other factors such as fees, flexibility, features of the home loan product, and the financial goals that you would like to achieve.

 Myth 3: You should not worry about your home loan once it is in place.

Whilst it might feel like quite an achievement once you have bought your home, and the home loan is in place, it is important to review your home loan facilities on a regular basis (Annually at a minimum), to ensure that it is still aligned with the financial goals that you would like to achieve.

There could have been several events that occurred in your life in the preceding 12 months that may necessitate a review of your home loan structure. Examples of these events could be getting married, changing jobs, having a child, and receiving an inheritance to name just a few.

 Myth 4: You should pay off your mortgage as soon as possible.

Repaying your home loan faster would result in you being able to save on interest over time. This might not suit everyone though because it might be that your financial goals are not aligned to that strategy. You might have a business that requires capital to run, and you would rather invest the money in the business than use extra funds to make extra repayments on a home loan for example.

 Myth 5: You need to be in full-time employment to be approved for a mortgage.

 Being in a full-time job is attractive to lenders because it provides a stable source of income for you to be able to repay the home loan over time. This does not mean however that people that are self-employed, or those that are on contract cannot be eligible for a mortgage.

 Myth 6: You need to be a Permanent Resident or a Citizen to be approved for a home loan.

 This is simply not true. Multiple lenders are currently considering applications where clients are on a Resident Visa. Resident Visa holders are entitled to the same interest rate and home loan product offerings as clients on Permanent Resident Visa or who are Citizens.

 Myth 7: All lenders assess applications in the same way.

 Each person’s financial situation is unique, and lenders all have different credit policies. This could mean that there could be substantial differences in the approval amount between lenders, sometimes into thousands of dollars. Don’t give up if your lender has declined your lending because there could potentially be another lender that would approve your home loan.

 Buying a first home could be the biggest financial decision that you are going to make in your lifetime. That is why it is so important to get information that is accurate and relevant when making an important decision as buying your first home.