If you’re like the majority of homebuyers, you’ll require a mortgage to finance your new property purchase. To qualify, you must have a stellar credit score and own payment. Without these, the conventional path to homeownership may be inaccessible.

While a rental property mortgage is similar to a principal house mortgage in many ways, there are some significant distinctions. To begin, rental property loans have a greater default rate than other types of loans, owing to the fact that borrowers experiencing financial difficulties prioritise their primary residence’s mortgage first. Due to the increased risk, lenders often charge a premium for rental properties.

There are also underwriting rules to consider, which are typically stricter for rental homes. Mortgage lenders, in general, are concerned with the borrower’s credit score, down payment, and debt-to-income ratio. The same principles apply to rental property mortgages, but the borrower will likely face stricter credit score and debt-to-income ratio requirements—as well as a larger minimum down payment. Moreover, the lender may do a thorough examination of the borrower’s employment history and income, as well as enquire about the borrower’s prior experience as a landlord.

Numerous lenders have lower lending limitations for investors (i.e., they lend the majority of their house loans to owner-occupiers), and you will often need a 40% deposit according to the Reserve Bank of New Zealand’s LVR rules.

In general, lenders seek the following information from borrowers before approving a rental property mortgage:

• Credit score: A minimum of 620 is required, with better rates and terms available for scores of 740 and above.
• Down payment: LVR lending limitations on loans secured by investment property have been tightened in response to rising housing market concerns in that sector. Loans with a high LVR fall into this category if they exceed 60% of the property’s value (40 percent deposit). Loans with a high LVR cannot account for more than 5% of a bank’s total new lending in this segment.
• Debt-to-income ratio (DTI): The DTI indicates the percentage of a borrower’s monthly income that is spent on debt repayment. Though the limitations are more lenient for primary residence mortgages, borrowers must have a DTI of between 36% and 45% to be eligible for a rental property loan.
• Savings: Along with a favourable debt-to-income ratio, borrowers should have sufficient funds in the bank to cover three to six months’ worth of mortgage payments, which include principle, interest, taxes, and insurance.

Consider the following before making a purchase:

Exemption for new construction

Loans to individuals who are constructing a new property are exempt. The borrower must either commit to the purchase early in the development process or purchase the residence directly from the developer (within six months of completion). The exemption is available to both owner-occupiers and investors in residential real estate. The LVR guidelines make no provision for the amount of a deposit required for new houses.

Exemption for remediation

Loans are exempt if they are used for remediation (e.g., to address concerns with weather tightness), to bring a dwelling up to current building rules, or to comply with new rental property standards (for example, insulation). The exemption is available to both owner-occupiers and investors in residential real estate.

Stay away from a fixer-upper

It’s alluring to hunt for a house that you can purchase cheaply and convert into a rental property. That is generally not a good idea if this is your first property. Unless you have a contractor that performs quality work on a budget—or unless you are experienced at large-scale home improvements—renovating is likely to be prohibitively expensive. Rather than that, seek out a home that is priced below market value and requires only minor repairs.

Taxes 

There are tax issues associated with owning a residential investment property. Rent income is taxable, which means you must file a tax return each year. Gains on the sale of real estate may also be subject to taxation.

Tax rules often change and can be complex, so it’s essential to get regular guidance on your personal circumstances from an independent tax adviser or accountant. You can also find a tax guide on rental income on the IRD website.

There are a lot of different things to consider when buying a second home, our experienced broker would love to help you go through the process and all aspects of purchasing a second property. If you would like to know more about growing your property empire and make your mortgage work for you, talk to our expert broker today.

Are you wanting to expand your investment portfolio by purchasing a residential rental property? If you make the right choice, investing in real estate can be both thrilling and rewarding. However, income and benefits aside, real estate investing might be intimidating for a first-time investor.

Investing in real estate is similar to searching for a diamond in the rough. You want it to look decent, but not so good that the price becomes excessive, and not so poor that it requires extensive work.

Most real estate search results prioritise attractive properties over fixer-uppers. As a result, you may need to seek outside the most common search strategies. Along with the internet, consider traditional networking and drive-bys.

By networking within the sector, you can learn about properties that have not yet been offered for sale. The more people who understand what you’re searching for within your investing network, the more eyes and ears you’ll have on the ground. This group comprises real estate brokers and property managers, as well as private lenders and even other investors.

Driving through leisurely but strategically located neighbourhoods can also go a long way. Fill up the gas tank, choose the neighbourhoods in which you wish to invest, and take the road. Homes that exhibit indications of suffering or neglect are frequently the finest buys. Consider piled-up newspapers, lawn garbage, and an exterior in need of TLC.

What kind of property?

Your choice of property will be determined by your budget, your objectives, the market, and your intended use of the property. There are a number of advantages and disadvantages to investing in single-family homes and condominiums.

Purchasing apartments rather than single-family homes may force you to contend with uncertain condo fees and a more difficult search for financing that must match particular criteria. For example, traditional lenders require that at least 50% of total units in a development be inhabited by purchasers of primary residences or second homes.

For beginners, the greatest investment property is typically a single-family residence or an apartment. Apartments require little maintenance because the building association handles outside repairs, allowing you to deal with the interior. Apartments, on the other hand, often command lower rentals and appreciate at a slower rate than units.

Single-family houses and subdivision lots typically attract renters for a longer period of time. Families or couples are occasionally seen to be better tenants than single persons, as there is an assumption that families are financially secure and pay their rent on time.

However, there are some advantages to investing in apartments rather than units. Apart from being more inexpensive, condos are typically located in trendy, desired neighbourhoods where a scarcity of available land limits the availability of single-family homes.

Buying

Banks’ financing criteria for investment properties are more stringent than for permanent residences. They reason that when times are rough, people are less likely to risk their houses than they are to jeopardise a commercial property. Prepare to pay a down payment of at least 30% to 40% of the purchase price, including closing charges. Have the property inspected completely by a professional and have everything reviewed by a real estate lawyer prior to signing.

Don’t forget to purchase adequate insurance. Renter’s insurance covers the tenant’s personal items, but the landlord is responsible for the structure, therefore insurance may be more expensive than for a comparable owner-occupied home. Mortgage interest, insurance, and depreciation on the property are all tax deductible to a certain extent.

Keep in mind that while selecting a rental property, it’s critical to look for one that provides a positive return and matches your investment objectives, such as capital gain or yield. Where you purchase will have a significant role in this. If you’re interested in learning more about how to expand your real estate empire and make your mortgage work for you, contact our professional broker today.

Are you considering purchasing an investment property? Given that real estate has generated many of New Zealand’s wealthiest people, there are numerous reasons to believe it is a solid investment. However, experts believe that, like with any investment, it’s best to educate yourself before investing hundreds of thousands of dollars. Many investors are fearful of the new housing laws, and they are questioning if it is still worthwhile to invest in property at this point.

The rules for property investors have altered, with the elimination of interest deductions on loans for rental properties and the extension of the bright line test to ten years. Consider the following variables and difficulties before purchasing your first rental property.

Determine if you have what it takes to be a landlord

While being a landlord can be a profitable source of real estate income, it is neither straightforward nor glamorous. Along with selecting the appropriate property, preparing the unit, and locating trustworthy renters, there are always maintenance challenges and headaches.

Are you familiar with the contents of a toolbox? How adept are you at drywall repair and toilet unclogging? While you could hire someone to do it for you or engage a property manager, both of these options will eat into your profits. Property owners with one or two homes frequently perform repairs on their own to save money.

To maximise the potential, investors must make prudent investment decisions. The location has a considerable effect on rental demand, tenant quality, and the rate of return on your investment. Therefore, seek out properties in areas with reasonable property values and relatively strong rental yields. This entails focusing on places with robust local economies and rapidly increasing populations.

How can I increase my chances of profiting from my property?

There are still techniques to increase your chances of profiting from property. The longer you hold a home, the more time you have to take advantage of any future property price increases (or recover from any falls).

Determine if the neighbourhood has adequate transportation and educational opportunities, as this can assist enhancing house prices or, at the very least, protect them from the worst dips.

Finally, if there is work to be done, it is more sensible to use your own paint brush. The less money you spend on the house, plus any increase in value when you sell, equals a larger profit for you.

The property’s return values

Property can generate two distinct types of results. One is derived from rent paid by tenants, while the other is derived from the property’s appreciation in value – referred to as capital gain.

Property investments are not deemed ‘liquid’ because they cannot be readily withdrawn. To obtain funds, we must either sell the home or increase the mortgage balance. This may not be simple – and additional expenditures like as valuation and real estate agent fees may apply.

Individuals purchase investment properties in order to profit from rising property values over time. In the near term, rent may generate little or no profit when expenses such as mortgage, insurance, rates, and upkeep are deducted. Additionally, if we sell within ten years of purchasing, we will be subject to income tax on the sale. (This is sometimes referred to as the ‘bright-line property rule.’)

Establish your margin

Wall Street corporations that acquire distressed buildings strive for returns of 5% to 7% since, among other costs, they must pay employees. Individuals should aim for a 10% return. Annual maintenance costs should be estimated at 1% of the property’s worth. Additionally, homeowners’ insurance, prospective homeowners’ association fees, property taxes, monthly expenses such as pest management and landscaping, as well as routine maintenance costs for repairs, are included.

The basic conclusion is that property investment is no longer a sure-fire way to make a quick buck in the present climate. However, for those willing to play the long game, there are still chances available. If you are ready to take the next step towards building your investment portfolio, we are experts, gives us a ring and let’s chat.

Countless new investors aspire to have a complete real estate portfolio. However, knowing how to get there might be difficult when you’ve only recently acquired one real estate. With that in mind, here’s a step-by-step approach to growing your real estate portfolio. You’ll discover tips on how to build one yourself.

While each portfolio is unique, they all serve the same purpose: to assist real estate investors move closer to their investment goals. While many investors want to construct a profile that would allow them to attain financial independence, others utilise their portfolios to attain more practical goals, like as funding for their children’s college educations or planning for retirement.

How to use the equity in your home

Home equity is an investor’s best friend. It provides you with the ability to purchase a nicer home or invest. But what exactly is it? The gap between what you owe and what your home is worth is referred to as equity. The more your neighborhood’s values have climbed since you purchased, the larger your sweet piece of equity may be!

Begin with a property valuation to compute it. A real estate agent or a bank can help you with this. Depending on your circumstances, you may be able to borrow up to 80% of the value of your home.

Consider expanding your equity if it looks more like crumbs than the cake you imagined. Make higher monthly payments, create an offset account to decrease interest, or do an ingenious remodelling.

What’s your property investment strategy?

Because the whole objective of developing and managing a real estate portfolio is to help you reach your financial goals, the initial step is to have a strong vision for what you want your portfolio to accomplish.

Are you an investor looking for a new source of consistent monthly income to help you pay your bills? Or do you want to start a business that will help you to attain financial independence? Are you interested in rental yield depending on criteria such as property type, location, and the economy? Do you favor capital growth if you have a good income and your mortgage is paid off? Ideally, you’ll be able to find both. Or are you going to negatively gear for tax cuts?  Consult a specialist for tax and financial guidance. As the old saying goes, if you pay peanuts, you’ll get monkeys.

After you’ve determined your portfolio and investment strategy objectives, the following stage is to develop your real estate investing business plan. While this may appear to be a lot of work, it is worthwhile. A business plan will assist you in defining precise, shorter-term goals, moving closer to attaining your goals, and defining the tactics you plan to employ to meet those goals.

Additionally, while it is not required, if you want to bring in partners to assist you fund or manage your initial investment potential, having a comprehensive business plan might help persuade them that you are committed.

Do your research

When you’re prepared to go, the research process begins. You’ll discover which marketplaces are popular and which are not, and you’ll choose a location. Then there are rental yields, demographics, median pricing, and clearing rates… What will your rent-to-repayment ratio be? Can negative gearing do the job? Are there any upcoming public transportation improvements or new schools that will promote capital growth? Is there a high-rise projected for the next street? Your new pastime is investigation!

You should collaborate with a group of real estate industry specialists, including a real estate agent and a mortgage broker. They can assist you in determining the finest real estate bargains and financing options for you.

When it comes to purchasing an investment property, though, it all boils down to the numbers. Once you’ve identified a property that you believe may be a suitable investment option, conduct an investment property study to ensure it makes financial sense.

Getting finance

A qualified advisor will assist you in assessing your equity, determining how to unlock it, and recommending a course of action. They will also assist you obtain pre-approval, which is a lender’s in-principle confirmation that you may borrow money to buy a dwelling. There are no guarantees, thus the term “pre-approval,” but there is sense of security! Contact us to find out how we can assist you.

 

Fear of missing out (FOMO) is your worst enemy as a buyer in today’s market, as it can quickly lead to many years of regret from the minute you unpack in the incorrect home, wondering, ‘What have I done?’

Isn’t it true that it’s easier said than done? However, we are going to discuss with you some of the consequences of falling into the FOMO trap and what you can do to prevent it.

1. Commit to your checklist of must-haves.

Many are so eager to get into a home that they are bypassing all of their must-haves and bidding on properties they would otherwise pass over.

In a house, do not lose sight of what is important to you. Before making a choice, take a deep breath and inspect the property at least twice. On the second visit, the rose-coloured glasses usually come off, allowing you to examine the property and its surroundings realistically.

2. Do not fall for the hype.

When you’re in the middle of things, it appears that values will only rise, and stock will continue to dwindle. Looking at prior hot market histories, we can observe that some potential vendors are inspired by outrageous sales results and decide to sell as they feel they will make a fortune.

This implies that more homes will come on the market, buyers will have more options, and they will be more likely to avoid those properties in the incorrect location with the expensive price tags. Clearance rates fall, the market cools, and buyers have less motivation to buy in a hurry. It’s better to wait than overcommit or make a wrong decision. When buying, maintain your cool.

3. Pay attention to what is going on in the world

As previously stated, the housing market typically goes through a period of correction, but this is not normal given that we are currently in the midst of a pandemic. While we can’t anticipate the consequences of these programmes’ termination, one thing that will ultimately change is interest rates, so be careful to factor any interest rate increases into your future plans – after all, purchasing a home is a long-term commitment.

Seek expert advice from a mortgage broker before entering the housing market during these periods. We know how the market works and provide some degree of insight on how things can work out in the future.

A tip: Buy within your means. It has never been more vital to complete your finances and due research before making a commitment.

4. Do your own research

It is better to remove the status of the market to some extent when buying, so best not to believe what the latest media reports are saying and instead focus on conducting your own study. Speak to real estate agents about recent deals or check out the sold section of real estate websites to get a sense of current prices. You should pursue hot, warm, or cold markets in the same manner: only buy a quality home that checks all of your boxes at a price you can afford.

Do your own investigation and do not believe everything you hear or read in the news.

5. Get a second opinion

We have all heard stories about a friend of a friend ready to make an offer on a property that her spouse hadn’t even viewed.

The moral of the story is that two sets of eyes are better than one. Even better, seek a second opinion from someone who isn’t emotionally invested in the purchase, has buying expertise, and it not experiencing FOMO. A fresh perspective can make a lot of difference!

Buying a home is a lengthy process and expert help can always come in handy. We are licensed Financial Advisers who understand mortgages and property investments. Working with us leads to better outcomes across all areas of advice.

Property prices in New Zealand are once again on the rise. As prices rise, so does the amount needed for a deposit. Even with low interest rates, this makes entering the market more difficult.

Entering the real estate market is certainly difficult. There are, however, methods to make things a little simpler, such as taking advantage of government incentives, having your parents act as guarantors, or using a low deposit home loan.

If you have any of these choices, it may make all the difference and help you finally break into the housing market.

1. Buy with a low deposit

When purchasing property, a 20% deposit is considered the usual. However, with real estate prices so high, it is just not a viable option for many first-time purchasers.

Many lenders provide house loans to customers with deposits of less than 20%. These low deposit home loans are frequently comparable to other loans with one exception: the maximum insured loan-to-value ratio (LVR).

Do not be confused by this technical mortgage phrase. The maximum insured LVR simply indicates how much you may borrow and how large your deposit must be. Most house loans have a maximum LVR of 80%, which means you may only borrow a maximum of 80% and will require a 20% deposit to receive the loan.

There are three things to be aware of when buying with a smaller deposit –

• Lenders mortgage insurance premiums: If your deposit is less than 20%, your lender will charge you lenders mortgage insurance (LMI) on top of that. This safeguards the lender in the event that you are unable to repay the loan. It can increase the cost of your loan by thousands of dollars.
• A lower deposit means you’ll have to borrow more: Buying with a modest deposit increases the amount of your loan. As a result of borrowing more, your repayments will be higher. It is the cost of entering the market more quickly.
• Lenders will conduct a more thorough review of your application: Borrowers with a low deposit may have to work harder to demonstrate their ability to pay back. When you apply for a loan, lenders will thoroughly analyse your income and expenditure.

2. Get a guarantor

If your parents own land, they could be able to assist you without charging you anything. If your parents agree to act as a house loan guarantor, they will effectively guarantee to pay back a portion of the home loan if you are unable to. This entails using their property as collateral for your loan.

This may seem risky, and it very well may be! However, if you are certain that you will be able to make your payments and your parents are agreeable, it is a possibility.

The guarantor option is not suitable for all property buyers. It entails having parents who are financially secure to some extent. You should also assess if it is worth the potential danger of entangling your assets with your parents in such a complicated way, but if planned right is sure an excellent option.

3. Take advantage of government support

If you are a first-time home buyer, the income and property price limits for the First Home Loan and the First Home Grants programme has increased.

Borrowers who qualify for the First Home Loan scheme can receive a home loan with just a 5% down payment if their annual income is less than $95,000 for one person or less than $150,000 for two or more individuals purchasing jointly. These loans are sponsored by Kinga Ora and are available through partnering lenders (e.g., banks).

The First House Grants scheme provides first-time home purchasers with a lump-sum payment from the government of up to $5,000 for existing residences and $10,000 for new dwellings.

The First Home Grant has the same qualifying conditions as the First Home Loan, with the exception that you must also be a KiwiSaver member to obtain a first home loan.

If you have been a member of your KiwiSaver programme for at least three years, you can apply to withdraw your KiwiSaver funds to use towards the purchase of your first property. The three years do not have to be consecutive, as long as they sum up three years of contributions. For example, if you’ve been a KiwiSaver member for three years but had a six-month savings break, you won’t be eligible for the First Home Grant until you’ve contributed for another six months.

Deposit is a big part of the buying process, which is why careful planning is required beforehand to ensure that the loan application gets approved. We are skilled mortgage brokers with vast experience in lending across retail, business, commercial sector, so if there is anything stopping your purchasing your first home, let us help.

Given property values on the rise, understanding how to enhance your home loan serviceability can mean the difference between obtaining the keys and being shown the door. Evaluating your borrowing capacity allows you to determine what kind of homes you can afford to purchase. Prospective homeowners and investors frequently spend time looking at properties that are out of their price range as they do not realize how much time they will be able to borrow for a home loan.

Simply explained, borrowing power is the mortgage amount that a lender is likely to accept you for depending on your financial position. A higher borrowing power indicates that lenders believe you will repay a larger loan.

What is home loan serviceability?

Every time a lender loans money to a home buyer, they are effectively making a business investment. As a result, they must determine whether you are a safe bet, which they do by evaluating your house loan serviceability.

It is not merely just for the benefit of the bank. If you obtain a loan and are unable to repay it on time, your ability to obtain future loans will be hindered due to a blemished credit score.

How it is calculated

The serviceability is estimated by adding all of your revenue, including your salary, rental income, and investment interest, and then subtracting your spending and other repayments, such as your various loan repayments.

Although, it is not always clear, especially when factors such as your employment status (i.e., contractor, freelancer, or full-time) and the number of dependents you have are considered. Lenders will calculate your mortgage at roughly 2.5 percent higher than the market rate, or at 7.5 percent – 7.8 percent, as part of the process of assessing your serviceability, to assure that if interest rates rise, you will still be able to confidently pay back your loan.

The benefits of increasing your home loan serviceability

The good news is that house loan serviceability is not a fixed condition; there are steps you can do to enhance it and thus increase your chances of obtaining a loan at a fair rate from a variety of products. Another advantage of higher serviceability is possessing a larger buffer to reduce risk if interest rates rise. This will relieve a lot of stress and provide you with a secure net to fall back on if something unexpected happens.

Here are five things recommended to improve your home loan serviceability.

1. Reduce credit limits

Even if you have no debt on your credit card, your limit will be treated as prospective debt when lenders evaluate your situation. As a borrower, having fewer credit lines and eliminating that potential risk will make you much more appealing to the lender. You have the ability to modify your credit score if you are aware of it. Even if things are not looking good, commit to making regular, on-time debt and bill payments. Remember to check your credit report for mistakes, which might occur over time.

2. Aim for stable employment

Some lenders may consider self-employment or contractors as a danger. If you are in a new position and still on probation, this can have an impact on your serviceability; thus, it is preferable to apply for the loan after you have completed probation, as this allows you to establish a consistent and steady revenue stream. Although with the right expert by your side it is possible to get your application approved.

3. Finish off BNPL loans

Buy Now Pay Later (BNPL) products are now widely accessible in most retailers in New Zealand; they are simple to use and may be viewed as an excellent method to manage cash flow; nevertheless, many individuals are unaware of the impact they have when seeking for a home loan.

BNPL activities frequently appear on credit reports, and generally, they have the same impact as credit cards in demonstrating when you are over-committing yourself through these services. Remember to pay off all of your debts before applying for a loan to improve your serviceability.

4. Curb spending

Before purchasing a property, it is essential to plan and save money, not only for the deposit but also to prove your spending habits are healthy to the lender. As you begin to consider acquiring a house loan, it is critical to reduce your purchasing habits.

The lender will need to examine your bank statements when you borrow money, and if you spend a lot of money on takeout and leisure, this will impair your serviceability. Banks need to see that you have appropriate spending habits so that they can trust you to meet your repayments.

5. Choose the right lender

Determine what you want and browse around for it. There is now so much competition in New Zealand, and with rates constantly changing, there is no better time to locate the finest products on the market.

So, if you are seeking for low-interest rate for your newest purchase, contact our experienced mortgage broker immediately and get your dream home journey on track.

New Zealand has always embarked on its love for properties as a way of building wealth. Buying a second home either as an investment goal or as a holiday getaway is a smart way of making some additional income or wealth to include in the retirement fund. It is just as exciting and equally daunting as buying your first property with the addition of handling two real estates at a time.

There are many reasons that can aspire you into buying your second home like down or upsizing from your current property, supporting a growing family, or starting out a rental property portfolio, etc. Owning a second property can be an appealing prospect and is both a luxury and a challenge. You will need make to some really important decisions when looking at buying your second real estate. In addition, being an existing property owner, you are likely to already have the wisdom from your past purchase experience to draw on. However, effective ongoing market research prior to buying an investment property will help save you thousands.

If you would like to apply for a second mortgage, it is important to keep in mind that affordability checks have become increasingly stern. You will need to prepare evidence to the lender that you are fully capable of covering the cost of two mortgages at once. Is it good to check with a mortgage broker when calculating your capability of buying a second home, as they have the market knowledge and know how to easily deal with the application process.

One of the first steps towards buying a second home is to establish how much deposit do you have. If you have considerable equity in your first property, it can be an excellent start towards buying your next one. The first property can be used as a stepping stone towards the next one, as you have the option to use that equity to fund the deposit for the second mortgage.

Equity is the percentage of your property outright owned by you. It is counted as the total market value of your property minus the outstanding mortgage you owe the lender. This value also includes the amount of profit you have gained in the duration of owning the property. As a general rule, you can borrow up to 80% of your existing property.

For example, if your first property is worth $800,000 and you owe the lender $400,000 on the mortgage, you will have $240,000 in equity you can invest in the new purchase.

To get the best of your existing property, it is advised for buyers to have paid off some of their mortgages to build the equity required to move ahead with purchasing an investment property. A minimum of 2 to 3 years is a good period to starts investing since your first home purchase.

If your current property does fulfill the basic requirements of being used as equity, or if you cannot afford to have two mortgages, you can choose to fully sell it and buy a new one. There can be many underlying conditions for one to consider this option like having to upsize for a rapidly growing family, wanting a new build property, etc. When taking this route, it is best advised to sell the existing property before you buy the next one. This allows you the advantage of knowing the exact amount you have on hand for the deposit and the price range you can potentially search into. With this, you will also have the leverage for being an unconditional buyer, which places you in a solid position to negotiate when you find the perfect property.

There are a lot of different things to consider when buying a second home, our experienced broker would love to help you go through the process and all aspects of purchasing a second property. If you would like to know more about growing your property empire and make your mortgage work for you, talk to our expert broker today.