How much deposit do you need to buy your first home?

Two key factors will shape your mortgage options:

1. The size of your deposit
2. Your ability to service debt

Understanding both is essential to building a strong foundation for your home-buying journey. Let’s break it down.

How much deposit do you need?
Setting a realistic deposit goal is a smart first step. Your deposit amount directly affects:

• Your mortgage eligibility
• The interest rates available to you
• Overall loan costs

Here are the common deposit benchmarks for first-home buyers:

• 5% deposit: Minimum required for the Kāinga Ora First Home Loan. It allows you to enter the market sooner but comes with additional costs like Lender’s Mortgage Insurance (LMI) and eligibility criteria.
• 10% deposit: Minimum deposit without government support, low equity premiums (LEP) and low equity margins (LEM) apply.
• 15% deposit: Mid range low equity price point. 
• 20% deposit: The ideal target. Reaching this level can unlock the most competitive interest rates and eliminate the need for low equity premium or low equity margin,  saving you money over time. 

To understand your deposit in context, consider your Loan-to-Value Ratio (LVR), this is the percentage of the home’s value that you’re borrowing. For example, if the home costs $700,000 and you have a $140,000 deposit, your LVR is 80%. Lenders generally prefer lower LVRs, as they pose less risk.

Determine your borrowing power
Your deposit is just one part of the picture. Lenders will also assess your ability to service debt. Two key factors influence this:

• Debt-to-Income Ratio (DTI): This measures how much debt you have relative to your income. A lower DTI improves your borrowing prospects by demonstrating financial stability.
• Monthly cash surplus: This is your uncommitted income after tax minus your living expenses and borrowing repayments (calculated at lender test rates) = your uncommitted income.

Tips to strengthen your borrowing power:

• Reduce personal debt: Lowering debt levels can boost your financial profile. 
• Improve your credit score: A strong credit score can qualify you for better loan terms and interest rates. You can boost your credit score by paying your utility bills in a timely manner, avoid overdrawing your accounts or exceeding your credit limit, and ensure any personal finance is paid on time. 
• Boost your savings and KiwiSaver contributions: Growing your savings and KiwiSaver contributions not only supports your deposit but also demonstrates solid financial habits to lenders. 
• Consider repaying your student loan: Paying off your student loan can positively impact your DTI as you’ll no longer have these deductions from your salary. 
• Increase your income: Additional income streams can enhance your borrowing potential.

Next steps: Start planning
Many first-home buyers are closer than they think to owning a home. Understanding your deposit and borrowing capacity puts you in a great position to plan ahead with confidence.

If you’d like help assessing your situation or putting together a personalised plan, give us a call on 0508 287 672 or fill out the form below.

Need more support? Check out our First Home Buyers Guide for step-by-step help on your journey to home ownership.

*The information contained in this blog is for general information purposes only. It is not intended to constitute financial advice and does not take your individual circumstances and financial situation into account. We encourage you to seek assistance from a trusted financial adviser.