To be honest, it's a little bit confusing as many people think that it's actually Kainga Ora that are providing the First Home Loan.
But that's not the case - the home loan is actually provided by one of the banks that are signed up for this program.
Now, I do say one of the banks because not all banks are signed up to it and some of the major ones aren't which means getting any information from those banks on this can be a little bit problematic. ANZ, ASB, and BNZ do not provide loans through this.
So what actually is Kainga Ora First Home Loan?
In many respects, it's the way to get around a rule that was introduced by the Reserve Bank. That rule is where they restrict how much lending the banks can do to people that have less than 20% deposit. The Kainga Ora scheme is exempt from those rules, and therefore it was designed specifically to help First Home Buyers that had less than 20% deposit.
If you are eligible you can buy with just a 5% deposit.
The concept also removes the risk from the banks as it is Kainga Ora that guarantee or accept the risk and any losses should that happen due to the low deposit.
However, to help cover this risk, Kainga Ora actually have an LMI fee, which is a lenders mortgage insurance fee to cover of 0.5% of the loan amount to cover the risk. This is similar to having insurance on a house or car - it protects against the financial risk of a loss.
Because you have less than 20% deposit, you will pay the 0.5% LMI fee. It's a one-off fee that's added to your loan so you do not need to find that extra money today.
So is it a good idea to use the Kainga Ora First Home Loan?
Yes, it's a great idea to use it to get into your first home and especially while house prices have been a bit subdued. You want to try to get in at today's prices rather than waiting a year or two to save a bigger deposit and possibly see those house prices increase as you're saving.
Yes, you will be charged the 0.5% LMI fee so that is an additional cost to be aware of.
But because the banks that are involved in this do not have the risk that would normally be associated with low deposit lending, many of them are coming up with some pretty good deals for first home buyers. One bank offers a 1.00% discount on the 1-year fixed rate so that covers the LMI fee plus more!
It's also better than what most banks would offer if they approved a loan that was not done as a Kainga Ora First Home Loan. If you were able to get lending from a bank in the normal course of business, and you had less than 20% deposit, not only would they not give you a special deal, they would more than likely be charging a low equity margin, which is additional interest over and above their normal interest.
What's Next?
The process for applying for a Kainga Ora First Home Loan is a little bit different.
You should reach out to one of the mortgage advisers that has experience with this to ensure that you get the right advice and to help manage you through that process.
Good adviser know what option is going to suit best and be able to answer all your questions too.
Obviously as a first home buyer everything is going to be new, and having a good adviser will remove much of the stress for you.
They not only be able to arrange the finance for you but they will help you work through the whole process of buying a house.
Even if you think you're not ready yet, it does no harm to have a quick chat to one of the advisers.
They are free and easy to speak with and will soon point you in the right direction for what you need to do to make sure that you can get as ready as possible, as soon as possible.
As mentioned when you're buying a first home it can be a real benefit to get into the market early, before prices increase.
You want to get pre-approved so that when you do go shopping for your new home you can move quite quickly when you see the one that is perfectly suited.
