Like most of you, I get a few emails dropping in my inbox daily. Generally it’s generic questions about buying a property or Nigerian scams requesting my bank account number. But this one was different.

Why? Well, I could hear the desperation in this lady’s words. And it really grounded me in terms of where you first home buyers are at. So many questions in your head that are in need of firm answers. 

The lady (let’s call her Kate) had downloaded our e-book, The Bank Said Yes, which led her to ask me advice about her situation.

I want to share our conversation with you because a lot of you are asking the same questions, and my advice to Kate will help you understand how you can get all your ducks in a row and can cross the mortgage threshold confidently, rather than stumble over it…

KATE:  Hi Campbell,

Thanks for the email and the book is definitely useful! My partner and I would love to get into the property market but as with a lot of others we don’t have a deposit saved, we have instead been paying our debt off as fast as we can. It’s a very frustrating situation to be in, as I’m sure you’ve heard others say. Are there any other options for us?

We haven’t yet been with KiwiSaver for three years (about 6 months off), although I don’t think it matters as our incomes combined are over the $130,000 threshold and we don’t really want family to help. Any advice is appreciated.

Regards,
Kate

CAM:   Hi Kate,

Funny you talk about the income threshold re: KiwiSaver. This is something most people get confused about. Anyone is able to take out their contributions, their employer’s contributions and the interest earned to help buy a first home. The only catch is that you must’ve been contributing for at least 3 years. That’s how the KiwiSaver Withdrawal works. 

The income cap and house price cap only apply to the HomeStart Grant – that’s the deal where you get $1000 for every year you’ve been contributing to a max of $5000 (or $10k for a brand new property). The three year rule still applies.

Sounds like you WILL be able to pull some money out of KiwiSaver in 6 months’ time which will go past pretty quick I’d say especially if you’re focussed on clearing debt. When you come up for air you’ll have a deposit (or the makings of one).

Sometimes we’re able to get people an approval even if they are carrying some existing debt. One comes to mind from a while ago where a couple had a car loan of around $10,000. The key to that was they had a power of income so they were able to show that affordability was awesome even after paying living expenses – the new mortgage and the car loan. With a bit of detail from you I’ll be able to see if you’re in the same position? Would you like to find out?

Cam

KATE:  Thank you so much for clearing that up for me, what a relief that we can still use our KiwiSaver!

So, our financial situation as follows:

 – Income: $135,000 combined before tax 
 – Current rent: $395.00 per week 

Debt as follows:

 – Personal loan: Balance $1000, this will be paid off within the month 
 – Credit Card: $1800
 – Partner’s Credit Card: $1000 
 – Two interest free holidays: $6000 – we will be focusing on this once the personal loan is done 
 – Harvey Norman card:$1700.00 

We aim to get rid of the above over the next few months. The only other debt is a car loan of about $12,000, which we’ll probably still have for a while.

Let me know what you think!
Kate

CAM:    Basically I think you’re right to continue to clear debt.

But the reason I say that might surprise you – it’s not the total amount of debt that’s the real problem (although less would certainly be better). No, it’s the fact that the debt sits in lots of places.

You see, the picture I get right now is of a couple who have no hesitation taking on short-term, expensive debt to fund their lifestyle. On the basis that you’ve got less than 20% deposit, that’s a picture that will kill your mortgage application real quick.

So yes, focus on clearing all but the car loan, just like you mentioned.

Once you’ve done that you then need to start saving the money you were using to clear those debts. This is just as important because the bank wants to see that you not only have the income to pay a mortgage (you do) but they also want to see that you are actually making a similar commitment now, as you would be if you were paying a mortgage. How do you do that? Rent + savings + KiwiSaver contributions should be roughly the same as your proposed mortgage payments.

So let’s work that out. A mortgage of $500,000 attracts repayments of about $2,600 per month. Which means you need to be saving about $500-600 a month for a few months after clearing those little debts on top of your normal rent and KiwiSaver contributions.

Looks totally do-able to me but will take about 6 months. Which is ok ‘cos that’s when your KiwiSaver pops up.

If you do those things I’ve got a fighting chance of getting a mortgage approval for you… how does that sound?

Cam

KATE:  Thank you so much for your advice Campbell, I really appreciate it! 

We will continue doing what we’re doing and I’ll be in touch in a few months with an update.

Thanks again,
Kate

CAM:    Sounds good Kate.

Touch base with me once you’ve cleared those debts.
Good luck! A bit of guidance can make a big difference in helping you get to your goal quicker. 

Working out what your current priority is in the pre-mortgage stages – whether it’s consolidating debt, paying it off, or creating a savings history – will focus your efforts and help you feel like you’re making solid steps towards your goal. 

You need to get those ducks in line before you go anywhere near the bank. 

Though I’d never add ‘Duck Sorter’ as a skill on LinkedIn, it’s one of the things we do best here at the Go2Guys – helping you wade through the numbers and the paperwork so you can see where you’re headed. Our advice is free, so it’s worth making the effort – and as early on as you can. To see how one little conversation can help your situation, give me a call.
About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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