Know your borrowing capacity, before you start looking for a home.
As interest rates increase, you may become discouraged from purchasing a home. However, with the Debt-to-Income (DTI) ratio set to be implemented by banks in the next 12 months, it could be a better time to buy now before these changes affect your borrowing capacity.
What is a debt-to-income ratio?
A debt-to-income ratio is a personal finance measure that compares the amount of debt you have to your overall income. Lenders, including issuers of mortgages and other financial institutions, may use your debt-to-income ratio as a way to measure your eligibility for credit based on your perceived ability to manage repayments.
How is DTI calculated?
DTI is calculated by taking the yearly income of the applicant/s and multiplying it by x to determine the maximum number they can borrow. For example, BNZ has implemented a DTI of 6 x your annual income.
For example, if your household earns $150,000, multiply that by 6, and you'll find the maximum amount you can borrow from BNZ.
Click here to workout your DTI: https://www.calculate.co.nz/dti-calculator.php
Leverage Government Schemes
If you're a first-home buyer, there are some additional factors to consider. The New Zealand government offers a number of schemes to help first-home buyers get onto the property ladder, including the First Home Grant and the KiwiSaver Home Start grant. It's also worth exploring the possibility of a Welcome Home Loan, which is designed specifically for first-home buyers and offers a lower deposit requirement.
Partnership Loans
Another option for first-home buyers to consider is the Kainga Ora Partnership loan, which is designed to help eligible buyers into homeownership with a lower deposit. This loan is offered in partnership with selected banks and is available to first-home buyers who meet certain criteria, including income limits and the ability to service the mortgage.
The Kainga Ora Partnership loan can provide up to 20% of the purchase price of the property, which can help to reduce the amount of deposit required. It is important to note that this loan is interest-free for the first 15 years, after which interest is charged at a low rate.
Additionally, Kainga Ora also offers a Home Start Grant, which provides eligible first-home buyers with a grant of up to $10,000 for an existing home, or up to $20,000 for a new build. This grant can be used towards the deposit, fees, and other costs associated with buying a home.
It's important to note that eligibility criteria apply for both the Kainga Ora Partnership loan and Home Start Grant and that they are subject to availability and changes.
If you are a first-home buyer and interested in exploring these options, it's best to speak with a mortgage broker or your bank to determine your eligibility and discuss your options.
Buying a house in Auckland can be a challenging process, but with the right approach and support, it can also be a rewarding one. With interest rates expected to rise and the introduction of the DTI ratio, there may never be a better time to buy than now.
Disclaimer: Information provided here is for educational purposes only. For more information on your borrowing options, speak to a qualified mortgage broker or your bank.