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Mortgage broker or banker? How best to navigate your finance options when buying a property.

**Buying a home is one of the biggest financial commitments we’ll make in our lives, so it’s important to investigate your options. **

Buying a home is one of the biggest financial commitments we’ll make in our lives, so it’s important to investigate and understand your options before taking on a mortgage. For those navigating the property market for the first time, it can also be hard to know where to start, even if you have a basic understanding of what’s required.

Vega CEO Harry Ferreira says the first thing you should do is speak to a mortgage broker or a banker.

“Just to make sure you understand what you need to provide in order to get the deal done. Also making sure you don't put yourself in a vulnerable position too.”

So how do you know who to pick?

“I would say that going to a broker is a better outcome for you than going to a banker. If you’re a broker you need to understand the credit criteria of not only the main banks, but also the non-banks, the second tiers and the private funders.”

“Typically a broker would have north of 40 to 50 funders they could go to, to get a deal across the line.”

Ferriera says many brokers have years of banking experience, and unlike a bank, if you get a no from one lender, your broker can take a different approach or take your interests elsewhere.

“If your bank says no, it doesn’t mean you can’t buy that property. It just means the loan doesn’t fit within that credit posture for that bank at the time. We’ve had scenarios where one week it’s a no as the client, and three week’s later it’s approved at the same bank. It just depends on how [the brokers] are putting the levers in order to make their portfolio work.”

“Brokers just have that vast array of options to choose from.”

To make sure you team up with someone who’s the right fit, it’s important to look at people’s credentials. Most brokers have websites, and Ferriera suggests looking them up, asking questions and asking for references.

“Make sure you do your research. Nobody can act in the industry at the moment if they aren’t registered or qualified.”

But if you want to stick to using a banker, the advice is to shop around.

“Get in front of as many bankers as you can, and really drive a hard bargain with them because there's not one bank in New Zealand that likes to lose market share.”

The next thing you need to do is understand exactly what you can afford. This includes how much deposit you need, and knowing how much savings you have. Typically, most people require a 20% deposit to secure a mortgage, but that can vary depending on loan to value ratio (LVR) restrictions. The introduction of long-expected debt to income ratios (DTI) could also affect the overall value of your mortgage, by setting limits on the amount of debt borrowers can take on relative to their income.

“Typically it’s about if you can service the debt, because interest rates have increased, and money is tight and [banks] want to make sure you can repay your loans.”

Ferreira says there are also a number of risks and other considerations to take into account before diving into a loan.

Stress testing your finances

This means making sure you’ll be able to service mortgage repayments if interest rates increase.

“What the banks do is they have these things called test rates. When the interest rate was early to mid-twos, the test rate was around mid-five. When interest rates went to five and six, the test rate went above nine for most of them.”

“So when you're testing at nine, you're testing somebody's affordability at a 9% interest rate. So the banks do build a buffer.”

But Ferreira says even with test rates, unforeseen circumstances like job loss or illness can still significantly affect your ability to make repayments. So it’s important to have a plan, just in case.

Extra costs

Buying and moving into a new home also comes with additional costs you need to budget for. This includes things like legal fees, building inspection reports, moving costs, rates, insurance and maybe even body corporate fees. Ferreira says this is when using a mortgage broker can come in handy.

“Most good brokers have a great accountant, or a great conveyancing lawyer.”

“Conveyancing should be under $1000, and if it's over $1,000 It'll be a bit more complex. That and the accounting pieces should all be able to be easily covered within a cashback offer.”

While not every lender offers cashback with a mortgage, a broker will be able to access the best deals.

Structuring your loan right

Ferreira says it’s not only important to get the size of your loan right, but also its structure.

“You can lose a lot more by structuring your loan incorrectly than you can on the interest rate. If you structure your deal incorrectly, it could end up costing you hundreds of thousands of dollars over the long term.”

There are also a number of other resources you can use alongside a mortgage to help you get into your first or next home.

Government funding

There is government assistance available for first home buyers, with income and price cap rules. 1. KiwiSaver first home withdrawal You can apply to your KiwiSaver provider to withdraw some of your KiwiSaver savings to put towards buying your first home, if you‘ve belonged to your KiwiSaver scheme for at least 3 years.

  1. [First Home Grant](https://kaingaora.govt.nz/home-ownership/first-home-grant/)
    

    If the purchase price of the home is under the regional ‘house price caps’ outlined on the Kainga Ora website, and you’ve maintained stable contributions to KiwiSaver for the prior 3-5 years before purchasing, the government through Kainga Ora can contribute up to $10,000 per applicant towards the deposit, depending on the type of property.

  2. [First Home Loan](https://kaingaora.govt.nz/home-ownership/first-home-loan/) 
    

    First Home Loans are issued by selected banks and other lenders, and underwritten by Kāinga Ora. You may be able to get a home loan with only a 5% finance deposit. How much you can borrow depends on your lender, where you live in New Zealand and what you can afford.

Vega CEO Harry Ferreira says support for first home buyers does vary from time-to-time, and this is when a mortgage adviser can be invaluable.

Help from friends and family

Getting assistance from family and friends isn’t unusual. In fact, Ferreira says a large portion of people take out home loans with some sort of help. This includes being gifted or lent some of the money needed for the deposit.

“There are gifting rules, and typically families helping may look at a slice of the home and then transfer out.”

Co-ownership is also another way to help with finance. Sometimes friends or family combine their savings for a deposit to buy a house together. This means you can share the cost of loan repayments, bills and maintenance.

Using existing equity

If you already own property you might be able to leverage existing equity to buy your next home. Equity is the difference between the property’s value, and the amount you owe on the home loan.

For more information on finance, or to find the right mortgage broker for you head to vegalend.co.nz

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