Welcome home loans – How to get a 10% deposit mortgage

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The New Zealand Welcome Home Loan is a scheme managed by Housing New Zealand to help people who are capable of mortgage repayments but are unable to save for a 20% deposit.

In essence, it helps people with moderate incomes get a home loan with a relatively small deposit.

Welcome Home Loan mortgages are not subject to the Reserve Bank’s loan to value (LVR) rules as they are underwritten by Housing New Zealand.

What does the Welcome Home Loan involve? Eligibility criteria:
A Welcome Home Loan requires a minimum deposit of only 10%. For example, this could be funded by a KiwiSaver deposit subsidy, savings withdrawal, or a gift from a relative.

You cannot borrow the deposit under the Welcome Home Loan. Any existing loans that you have will be taken into account by the bank in the serviceability assessment and whether or not you fit good credit criteria. A mortgage broker would make a great point of reference here.

Additional eligibility criteria are as follows:

1)    Income Cap Limit:
            If you are the sole borrower you must have a total household income for the past 12 months of up to $80,000 (before tax).
            If you are teaming up with one or more borrowers to buy a house then you can have a combined household income of up to $120,000 (before tax).

2)   Welcome Home Loans are restricted to houses within a certain price limit. The maximum amount you can borrow depends on the house price cap for the region you are buying in. In Auckland, the current housing cap is $485,000.

3)    The borrowers must intend to live in the property being bought.

4)    The borrowers must not own any other property and the loan cannot be used to buy an investment or rental property.

5)    The borrowers need to be either New Zealand citizens or permanent New Zealand residents (holding a Permanent Resident Visa).

How does it work?
This usually happens in two stages. You can apply for a Welcome Home Loan by going into one of the branches of the participating lender. See
http://www.hnzc.co.nz/ for a list of Welcome Home Loan lenders.

In this first stage, when you meet with the lender, they would run through the scheme with you and check your financial background. They would run the same line of credit checks & financial assessments as they would for a regular mortgage.

The key point in this instance is that you will need to meet with the lender’s lending criteria, and the criteria for the Welcome Home Loan scheme.

If you qualify, the lender will then send your loan application to Housing New Zealand on your behalf for final approval. At this stage, it is still at the discretion of Housing New Zealand as to whether or not you will receive the loan.

Can the house be owned by a trust when with a Welcome Home Loan?
Ownership must be in the borrowers’ names and therefore cannot be placed in a trust.

What if I own a house overseas or a yacht – can I still apply?
 No, this would be recognised as a realisable asset and you would be required to sell it to be considered eligible for a Welcome Home Loan. You will need to be in the same financial position as a first-time home buyer in terms of income and ‘realisable’ assets.

What if I previously owned property but no longer do – can I still be eligible?
There is still the possibility of becoming a second chance home owner. However, most lenders would require detailed explanation as to the circumstances.

What if I want to build my own house?

Only some participating lenders allow borrowers to build house with Welcome Home Loan. The downside to this is that you may have to pay a mortgage premium and fees. Talk to the participating lenders about this to find out more. 

For further advice on Welcome Home Loans, or for assistance with your residential conveyancing, contact property lawyer, Wade Hansen by phone on 09 837 6885 or email wade.hansen@smithpartners.co.nz