If you’ve been struggling to get a deposit together for your first home or the bank is requiring you to have more equity before they will grant you a mortgage, it may be worth exploring the Kiwisaver angle. There are two options – a deposit subsidy or savings withdrawal.
Option One – Deposit Subsidy
After 3 years of contributing to KiwiSaver, you may be entitled to a first home deposit subsidy. The subsidy is administered by Housing New Zealand. This subsidy will be paid to your solicitor on the day the purchase of the property is settled.
If you are using your Kiwisaver as part of your deposit it may be a good idea to add an extra clause into the Sale and Purchase agreement that is drawn up when you make an offer on a house that reflects this along with your standard finance clause. The clause would look something like this:
“This agreement is conditional upon the purchaser receiving a full approval of the subsidy from Housing New Zealand in accordance with the KiwiSaver scheme and advising the vendor or the vendor’s solicitor on or before 4 pm on by [ ] that this condition has been satisfied.”
How long does the process take?
It can take a reasonable amount of time to have your application approved so it is best to get the process started and gain preapproval before making offers on a house. I gave Housing New Zealand a call before writing this post to find out more about the process. The person I talked to suggested that it would take around 10 working days (2 weeks) to find out if you are eliglble. Once an offer is in place and is unconditional (you as a buyer have completed your due diligence on the house eg builders report, valuation, title check, lim report etc and committed to purchasing the house by paying a deposit), it takes another 4 weeks for the money to be released by Kiwi Saver to your solicitor for use in the house purchase. This means that your settlement date (the date at which you become the owner of the house and start paying a mortgage on it ) should be at least 4 weeks after the unconditional date.
What the deposit subsidy is worth
The first home deposit subsidy is $1,000 for each year you’ve been contributing to KiwiSaver, up to a maximum of $5,000 for five years. If you’re a couple buying a house together and you both qualify for a subsidy, you could receive a combined subsidy of up to $10,000.
Getting a deposit subsidy
To be eligible for the first home deposit subsidy, you must:
# have contributed at least 2% of your income to a KiwiSaver scheme, or a complying superannuation scheme, for at least 3 years
# be buying your first home*
# be planning to live in the house for at least 6 months.
Income and house price caps will apply.
* If you’ve owned a home before, in some circumstances you may still be eligible for the first home deposit subsidy. Housing New Zealand will need to determine that you are in the same financial position as a first home buyer. To find out more, visit the Housing New Zealand website or call them on 0508 935 266. There is an intro booklet available here which takes you through the steps involved in purchasing a home.
Option two – Savings withdrawal to buy your first home
Another option if you aren’t eligible for the deposit subsidy is to try and some or all of your KiwiSaver savings (except for the $1,000 kick-start and member tax credit) to put towards buying your first home.
Some complying funds don’t allow you to withdraw your savings for your first home. If you’re a member of a complying fund and want to use your savings for your first home withdrawal you’ll need to check with your provider to see if they offer this.
Making a first-home withdrawal
You must have been a KiwiSaver member or member of a complying fund for three or more years. You can only withdraw money to buy your first home – not an investment property.
If you have owned a home before, in some circumstances you may still be eligible to withdraw your savings. Your scheme provider may require you to contact Housing New Zealand to determine if you’re in the same financial position as a first home buyer.
How to apply for a first-home withdrawal
You’ll need to apply to your KiwiSaver provider if you want to make a first home withdrawal.
There is a website that is a great resource set up for First Home buyers who want to learn more about the purchase process. It offers a FREE home ownership education course outlining everything you need to know about buying your first home in some detail. Visit Welcome Home First Steps to find out more.
The obvious alternative if you have questions would be to talk to your friendly local real estate salesperson. Feel free to send me an email or give me a call if you have any specific questions regarding purchasing a home that isn’t covered in the resources above. David Garratt – ph/text 0274374351 or 9382654 or email me.