Saving a deposit is one of the biggest steps toward buying a home.
For many buyers, the focus is understandably on reaching the required amount. However, lenders usually also want to understand where that deposit has come from.
This can be especially relevant for first-home buyers, where a deposit may come from several sources, such as savings, KiwiSaver, gifts from family, or the sale of another asset.
Lenders look at more than the total amount
A deposit helps reduce the amount being borrowed, but it can also tell lenders something about financial habits.
Regular savings may show an ability to put money aside consistently. A gifted deposit may be helpful, but lenders may want to understand whether it is genuinely a gift or whether it needs to be repaid during the term of the loan, or if the house is sold.
If money has come from several sources, lenders may ask for supporting documents to confirm where the funds came from.
Gifted deposits can need extra detail
Family support can make a meaningful difference for some buyers.
However, if part of the deposit is gifted, lenders may often require confirmation that the money does not need to be repaid. This is because a repayable loan from family could affect affordability.
A gift may support the application, but the lender still needs to assess whether the borrower can manage the mortgage repayments based on their own circumstances.
KiwiSaver withdrawals can take planning
KiwiSaver is commonly used by eligible first-home buyers as part of a deposit.
However, withdrawing KiwiSaver funds involves a process, forms, eligibility requirements, and timeframes. It is not something to leave until the last minute, and applications need to be submitted in plenty of time to ensure the funds are available on settlement day.
Buyers may need to allow enough time for their provider, solicitor, and lender to complete the required steps.
Why documentation matters
Home loan applications often require supporting evidence to verify the information provided.
This may include bank statements, confirmation of savings, proof of gifted funds, KiwiSaver withdrawal information, or sale and purchase details.
Having documents ready can help the application process run more smoothly and may reduce delays.
Planning before making an offer
Understanding the deposit position before making an offer can be useful.
It can help buyers know how much they may be able to contribute, whether any conditions are needed, and how much time may be required before settlement.
A mortgage adviser can help buyers understand what lenders may ask for and how different deposit sources could be treated.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.