Costs to be aware of as a first home buyer

Buying your first home is an exciting milestone - however there are costs that you may not be aware of which you are likely to come across in your home buying journey. This article will outline the potential costs for you to keep in mind so there’s no nasty surprises.  

It's important to budget for these costs and have a clear understanding of your financial situation before buying your first home. It's also recommended to seek advice from a financial adviser / mortgage broker to ensure you understand all the costs associated with buying a home and can therefore make an informed decision. 

1. Deposit:
   To be eligible to purchase your first home - you need to have between 5% - 20% of the purchase price ready in the form of (either or/ a combination of): Savings, KiwiSaver (if eligible), First Home Grant (if eligible), Gift from family members and Shared equity (depending on the bank). This will be the largest sum of money required during the home buying process.  
    

2. Legal Fees:
   A lawyer / conveyancer is a very important person in your home buying process. They help you with the legal aspects of buying a home including (but not limited to) property searches, title transfers, reviewing your sale and purchase contract. They will also handle the legality surrounding settlement of your home loan. You will need to budget around $1,500 - $2,500 for legal fees.  
    

3. Valuation Fees:
   The bank may require a valuation of the property you want to buy through a registered valuer on their panel. This can range from $800 - $1,200. It can sometimes be more or less than the range given as it depends on factors such as: complexity of valuation, time constraints and demand for valuers at the time valuation is required.  
    

4. Building Inspection Report:
   It’s vital to get a building inspection done on the property you want to buy. This is so that you can assess the condition of the property and identify any potential issues. This is an important part of your due diligence so that you can be well informed before committing to purchasing your first home. Budget around $400 - $800 per house depending on the city/ town, complexity and size of the property. You may want to include meth testing as part of this report depending on the suburb of the house.  
    

5. LIM Report:
   Land Information Memorandum (LIM) is a report of the information that the council has about a property. LIM report shows information about: 

   Zoning, land issues, building consents or permits, rates and other information that the council thinks is relevant. It’s important to have this information because it can affect whether you can get house insurance on the property - which is a requirement by the banks for settlement to occur I.e. insurance companies do not like un-consented work and major land issues. LIM reports cost between $325 - $439 (at the time of this article) depending on how urgent the report is required. Sometimes the real estate agent has a LIM report so you may not need to purchase it - check with them first before you go ahead to purchase a LIM report.  
    

6. Mortgage Repayments:
   Your mortgage repayments will have a combination of principal and interest in-built in the repayments. Principal is the portion that pays down the mortgage amount and the interest goes directly to the bank with no affect on the principal. Without going into too much detail - there are plenty of mortgage calculators on the internet - therefore it is highly advisable that you check whether you can afford the repayments especially if interest rates increase. This is where a knowledgeable mortgage broker will be able to help.  
    

7. Low Equity Fees (LEF)/ Low Equity Margins (LEM):
   This only applies if you have less than 20% deposit. LEF is a one-off fee that’s added onto your mortgage. Only a few banks do this and it is usually between 0.25% to 2.0% on-top of your loan. LEM is when a bank adds to the interest rate on your mortgage. This is because they see less than 20% deposit as a risk. The lower the deposit, the higher the interest rate added. The interest rate added is between 0.25% to 2.0%. You will either get LEM or LEF - not both. As a result - 20% deposit is highly recommended to save on LEF or LEM.  
    

8. Loan Application Fee:
   Sometime the bank will add a loan application fee to the mortgage. This is usually around $250 - $500. 
    

9. New Expenses - Council Rates, House Insurance and Body Corp:
   When you buy your first home - you will soon realise that you will have new expenses that weren’t there before. Three that comes to mind is council rates, home insurance and body corp (depending on the type of house you buy). The cost of council rates, home insurance and body corp vary depending on where in New Zealand your house is and the features of your property. In Auckland - council rates are around $2,500 - $5,000 per annum and home insurance is around $100 - $150 per month. You can check council rates for any property here. 
    

10. Furniture and Fittings:
    There is no requirement to go crazy on decorating and fitting out your new home as soon as you move-in - however keep this aspect in mind. 
     

11. Moving Costs:
    If you already have furniture and fittings that need to be moved to your new house - you can get professional movers/ family and friends. Professional movers will be able to do the job quicker. If you are moving within the same city - you can get this done for around $400 - $500. Friends and family will be the cheaper option but keep in mind that you may need to hire trailers/ van unless your family/ friends already have them.  There could also be connection costs i.e. connecting up electricity and broadband.  
     

12. Maintenance:
    Over time your house is going to require TLC and basic maintenance. Yes some things can be DIY'ed but some will require specialists such as plumbing, roofing etc.  
     

 Extras (highly recommended but not compulsory): 

• Estate Planning:
  When you get your first home is a perfect time to get your Will sorted. You can speak to your solicitor to give you advice on this area.  
   

• Life Insurance:
  As exciting as it is to get your first home - the reality is that you inherit a large debt. If you or your partner were to pass away prematurely - can the surviving members of your family afford to make mortgage repayments and continue to have a good standard of living? Life Insurance can give you the peace of mind that the rest of your family is taken care if you or your partner passes away. An Insurance Adviser (also known as an Insurance Broker) can set you up with an Insurance policy that is high in quality and meets your budget. For more on this, be sure to read our blog article on 'Life Insurance for First Home Buyers'.

The above may seem overwhelming if you are a first home buyer - however you are now aware of it and can get prepared for it. You can chat to us when you start your journey and we can guide you through the whole process. We can structure your mortgage so you can pay if off faster in a way that suits your lifestyle, goals and capability.