What does it take to get a low deposit loan?
One of the top questions we get from first home buyers is "How much deposit do I need?" The answer is entirely dependent on your situation, if you have favourable circumstances, a low deposit loan could be possible.
While the days of 5% home loans are mostly a thing of the past, the banks do have the ability to offer low deposit loans. This is as long as the applicant can meet certain standards.
Here are our tips for giving yourself the best chance of obtaining a low deposit loan.
1. Have excellent credit history
If you've had recent bad credit, this will be a strike against your chances of getting a low deposit loan. To fix a bad credit report; pay any outstanding debts; pay all your bills on time; dispute any unfair or incorrect black marks on your record.
2. Preferably have a deposit you have saved
Banks don't like all of your deposit to come in the form of a gift. They want to see you can show a commitment to maintaining a budget and having regular savings. Your deposit can include KiwiSaver but also if possible, some real savings.
3. Demonstrate tidy bank accounts
Key to this is to maintain excellent account conduct, ie no unauthorised overdrafts, dishonours.
Look at your accounts, and think – would it look like I am a spender? If yes – then think every time you spend money, do I really need this? Am I at the supermarket, cafes, bars, TradeMe, and shopping too much. Do I have too many accounts? How does my money flow in and out?
4. Show a very good surplus of funds once all expenses are deducted
Having a budget that includes savings set aside displays to a lender that you are financially in control and able to handle the commitment of a mortgage.
5. Have hardly any debt
Any debt is going to be a significant hurdle if you are trying to obtain a low deposit loan. This means credit card limits (and the amount owed), personal loans and student loans. For more information about the effect of debt on borrowing potential and our tips for getting out of debt, take a look here.
6. Steady long-term employment and income
Lenders like when you are out of the 90-day clause of a new contract, so if you are changing roles, do this, and get past the 90 days and then it’s a tick for that box.
Get help with obtaining a low deposit loan
If you'd like some help to assess whether you are able to obtain a low deposit loan, complete the form below and one of our first home buyer advisors will be in touch.