If you’ve never bought property before, there are several considerations to make throughout the process, including tax implications, whose help to employ, and how to deal with different types of property. In this article, we will guide you through the 9 fundamental stages of buying your first home.
9 stages of first home buying
This guide breaks the buying process down into 9 simple steps and gives you a straightforward summary of all the things to look out for. Note that the order of these steps may vary slightly, depending on your circumstances and local market.
1. Saving a deposit
Banks require security when lending to prospective buyers which is why in most cases the minimum deposit for a mortgage is now 20%. For a house worth $600,000, you would need to have at least $120,000 saved up to pay upfront.
The higher your deposit, the less risk there is for both you and the bank, so we recommend saving and pooling as much of a deposit as possible before apply for a mortgage. To figure out how to save a mortgage, you can use budgeting tools, mortgage tools, and savings calculators.
2. Arranging finance
You can’t buy a house without the necessary funds, so it’s critical to arrange your financing early. Common financing options include:
- A mortgage from your bank.
- First Home Grant grants up to $10,000, depending on the house and other criterias.
- Using some of your Kiwisaver balance.
- Tenant home ownership, for Kainga Ora tenants.
- Kainga Ora’s First Home Buyer Scheme.
When using a loan, you’ll need pre-approval from your lender before you can make any offers on the house. Before making any commitments, we recommend seeking expert advice from financial advisors, your bank, or a mortgage broker.
3. Finding a house
Before you can invest in your first home, you need to find one that fits your criteria. You can find houses through a real estate agency or broker, privately, or on property listing websites like Real Estate NZ. Remember not to rush into a purchase; we recommend shopping around, considering what is important to you, and seeking professional advice.
4. Get a lawyer
Conveyancing lawyers are vital when buying and selling real estate because they handle the entire transaction from start to finish. A buyer’s conveyancing lawyer acts on your behalf in all the relevant legal matters, including:
- Confirming to the seller’s lawyer that the money will be deposited in the specified account.
- Ensuring the bank transfers the money to successfully process the transaction.
- Providing a legally binding guarantee that the transaction will not be reversed.
Enlisting the help of a conveyancing lawyer is invaluable because it ensures everything that needs to be done is being handled with professionalism and diligence. This way you’ll avoid complications and costly mistakes, and be confident the transaction is taken care of.
5. Receiving the Sales and Purchase Agreement
A Sales and Purchase Agreement (SPA) is a legally binding contract between the buyer and seller. All the details, terms, and conditions of the sale are listed to provide everyone involved with certainty about what will take place. Generally, the seller’s real estate agent will prepare this after an offer has been made and accepted.
At this point, it is crucial to have your lawyer review the SPA to make adjustments if necessary. Don’t feel pressured to sign immediately because you may find yourself locked into terms and conditions that aren’t in your best interest.
6. Conditional Period
If the Sales and Purchase Agreement includes conditions, you will have a certain amount of time to investigate the property through a building report, LIM report, and methamphetamine testing. If you are not satisfied, your lawyer will need to confer with the vendor’s lawyer. However, if both buyer and seller agree, the conditional period will end and the Sales and Purchase Agreement will become unconditional — binding on both buyer and seller.
7. Settlement preparation
Once the Sales and Purchase Agreement is unconditional, you are required to pay the agreed deposit amount to the seller and your lawyer will prepare the necessary documents for you to sign before the settlement date. They’ll also communicate with your lenders to verify everything is properly arranged. This is your opportunity to organise homeowners insurance.
8. Pre-inspection
Prior to the settlement date, you should arrange a pre-inspection of the property to identify any damage or other issues that have occurred since signing the Sales and Purchase Agreement. Your lawyer can negotiate to have the issues resolved, lower the settlement price, or both.
9. Settlement day
Settlement is the final destination at the end of the home-buying journey. The settlement day is the day your lawyer completes the legal transfer of the property and verifies that the vendor has received the agreed funds. At this point, you will get the house keys and be able to move into your new home.
What to look out for when buying a house
There are several things to consider when buying your first house, including tax obligations and property types. Here are some of the common ones:
The Bright-line property rule
As of 2022, the Bright-Line property tax applies to new build houses bought and sold within five years and existing properties bought and sold within ten years. However, if the property is your primary residence, it will not be subject to the Bright-Line rule.
The purpose of this tax is to target property investors who profit from the sale of second properties, not everyday-New Zealanders selling their first home.
Residential Land Withholding Tax (RLWT)
For some residential property sales, Residential Land Withholding Tax (RLWT) will apply. The tax targets offshore investors and will apply to you if:
- Your property includes residential New Zealand land,
- The settlement amount is payable or paid after 1 July 2016,
- And either:
- You bought the property within the timeframe of 1 October 2015 - 28 March 2018 and owned it for less than two years,
- You bought the property on or after 29 March 2018 and owned it for less than five years,
- Or you are an offshore RLWT person.
Different types of property and titles
When it comes to buying a property, you need to think about how the title is held. The most common types of property titles in New Zealand are Freehold, Leasehold, Cross Lease, and Unit Titles. Leasehold, Cross Lease, and Unit Titles are more involved. Your property Lawyer will advise you.
House and land package
Purchasing a new build on a subdivision is a popular option for many first home buyers. The purchase process will take much longer than you may expect because your local council, Land Information New Zealand, and your lawyer are all required to contribute to the issue of title before the new build can progress.
A property lawyer can help guide you through the first home-buying process, no matter what your situation is. Make an informed decision about your first home by contacting our dedicated team at Halliwells via Legal Path. With their extensive knowledge of property law, they will be able to assist you with all your conveyancing needs.
