So you have a regular income. You rent a place for $450 per week, and you’re pretty sure a mortgage on a similar dwelling would be around $550. With a few tweaks to your budget you know you could make the payments. There’s just one thing standing in between you and your dream of owning a home - the deposit.
There’s been a lot of depressing media coverage over the last, oh, five years, about how hard it is for people to buy houses these days. So you probably feel locked out of the market. Defeated before you’ve even started. But I think you can buy a house! You just need to be sneaky, tenacious and determined.
Before I get started, I’m assuming you’re a normal person with normal expectations. If you’re looking for a house in the 400 - 500 price range, you’re not hoping to find a renovated four bedroom villa with a separate self-contained studio in Grey Lynn (dammit!). You know that you could expect something along the lines of:
- A one bedroom inner city apartment
- A two bedroom city fringe unit with a courtyard
- A three bedroom house in Henderson that needs a bit of work
- A three bedroom house in Otahuhu that’s got new carpet and has been freshly painted
I’m also assuming that you are in an ok financial situation. Student loans notwithstanding, you don’t have any crazy credit card debt, personal loans, car loans or higher purchase payments. (If you do have any of these things, pay them off before you get started. See the awesome Mr Money Mustache blog for tips.)
So you’ve got your financial priorities straight, you’re happy to start out small or in a location that isn’t at the top of your list - but how are you supposed to save a deposit? Your rent eats most of your income and Auckland is so expensive these days!
If you know you could meet the mortgage repayments, you’re actually in a pretty good situation. You’re a sure bet for a bank - and they’d be crazy not to want your ongoing payments over the next two to three decades. You’re good business!
So now that I’ve boosted your confidence, here’s how to get your deposit:
- Save. If rent is your biggest expense, consider moving somewhere smaller and cheaper - the saved rent will quickly add up.
- Check your Kiwisaver. How much is in there, and can you take it out for a deposit?
- Talk to your bank. Not everyone needs a 20 per cent deposit - you can probably get away with something much lower. If your bank won't come to the party, shop around.
- Get a good mortgage broker on board. They’re in a much better position to work the banks than you are.
- Talk to your folks. They might not be able to lend you any money, but if they own their own home you may be able to use their equity as your deposit (just make sure you get everything drawn up properly with a lawyer).
- Get a loan for your deposit (or put your deposit on your credit card). This is obviously terrible advice that no reputable financial advisor will ever give. But if you badly want a house, and you’re confident that you can pay back the loan on top of your mortgage, then it might be something to consider. (It worked for, er, someone I know.)
So what if you’ve withdrawn your Kiwisaver, you’ve negotiated your bank down to a 10 per cent deposit, you’ve saved 5K and you’re comfortable taking out a small additional loan - but you still can’t afford a deposit on a place in Auckland?
This is when you have to be sneaky, tenacious, determined - and play the long game.
This is when you drive to Hamilton and buy yourself a tidy, low-maintenance rental property. Something that won’t need much work - perhaps a small unit. Now you put some good tenants in it, sit back and wait. And wait. In a couple of years the combination of your mortgage payments and rising house prices will mean you have some equity in your property - and you can use that equity to buy your own place in Auckland.
So put your fingers in your ears and block out the media noise. You’re sneaky, tenacious and determined, remember? You deserve to have your own house in the city you live in. And you can make it happen.
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The advice provided in this article is general advice only, and is provided by someone who has absolutely no financial qualifications. Always consult a reputable independent financial adviser before making important financial decisions.