Owning your first home might feel like a distant dream, especially with concerns about affordability. But what if we told you that the journey to homeownership is not only possible but can be financially comparable to renting? In this article, we’ll walk you through a real-world example to showcase how a couple like John and Sally can turn their homeownership dream into a reality.
Meet John & Sally: Their Homeownership Journey Begins:
John and Sally, a young couple eager to purchase their first home – an apartment in Henderson. The apartment’s purchase price is $540,000, and they’re excited to explore the possibilities that will make their homeownership dream come true.
John and Sally have done their research and know that they need at least a 10% deposit to meet the current Loan-to-Value Ratio (LVR) regulations. For a $540,000 apartment, this means a minimum deposit of $54,000
To secure this deposit, they’re utilising various resources:
John has been contributing to his Kiwisaver for 5 years and is eligible to use $22,000. Sally has only been contributing to Kiwisaver for 2 years and therefore isn’t able to use her Kiwisaver funds.
John’s Kiwisaver withdrawal contributes an additional $22,000 towards their deposit.
First Home Grant: John qualifies for the First Home Grant of $10,000 since he has been contributing to his Kiwisaver for 5 years.
First Home Partner Assistance:
John and Sally have a combined annual salary of $110,000 /year, which is under the Kainga Ora income cap of $150,000/year for the First Home Partner.
The First Home Partner scheme makes them exempt from having the required 10% deposit, they only need to have at least 5%. As their total deposit is $32,000, they have met this criteria.
Due to Sally only working part-time, their combined income isn’t high enough to get a mortgage of $508,000. The shared ownership scheme, means Kainga Ora can take on a portion of the ownership of the property up to 25% of the purchase price, which would be $135,000. This means that the total mortgage John and Sally need will be $373,000.
purchase price $540,000
less deposit $32,000
less Kainga Ora contribution $135,000
John and Sally will have a total mortgage of $373,000. They opt for a 24-month fixed rate of 6.79% from Kiwibank
Their weekly repayments amount to about $560. This strategic decision not only empowers them to take a step towards homeownership but also offers them financial stability comparable to renting.
Comparing the Costs: Renting vs. Owning:
Let’s compare the costs: The median rent for a 2-bedroom apartment in Henderson is $650 per week. Over a year, this translates to $33,800.
When considering their mortgage, John and Sally find that their fortnightly repayments of $560/week repayments amount to approximately $29,120 over the year. Remarkably, the cost of owning a home on their current mortgage rates is cheaper than renting.
A Few Extras: Planning for the Unforeseen:
It’s important to remember that owning a home comes with additional costs, such as body corporate fees. However, these expenses can be planned for and managed effectively when budgeting for homeownership.
Conclusion: Your Journey Awaits:
The story of John and Sally isn’t just theirs – it’s a tale that underscores the possibility of affordable homeownership. With strategic planning, assistance programs, and a bit of determination, you can step onto the property ladder without breaking the bank. Your journey towards homeownership is within your grasp, waiting for you to take the first step.