How we purchased our first home with no debt

Owning your own home is a huge deal, it’s the Kiwi dream. We leave home, flat and rent for a while and then decide that we want a slice of the property pie and do everything we can to make that happen.

Generally this ends in a large mortgage and many years of the bank essentially owning your home – did you know that the word mortgage means “death contract” in French – essentially a contract you have with the bank until you die. Whilst it’s more commonplace for mortgages to run 20-30 years these days, rather than until you actually die – it’s a long time to be paying for a roof over your head regardless.

Anyway, I digress. Almost 18 months ago we purchased our first home with NO debt, and while you may not be willing to make the sacrifices we did to get yourself on the property ladder, some of the things we did along the way can definitely help you get there quicker and keep more money in your pocket.

//Saving
To begin with, we both are savers by nature which definitely helps. To purchase a home (with or without debt) you will require a deposit which generally must be paid up front once you have signed a sale and purchase agreement.

Taking a good hard look at your income and expenditure and sitting down with a budget calculator (yes, it may sound boring – but could save you thousands in interest down the track!) and seeing where you can either bring in more income or cut some expenditure is a fantastic use of a few hours one rainy day. The budget calculators on Sorted.org.nz and our bank statements were my first port of call when wanting to see how much we actually earnt, spent and how much we could realistically save.

A little put aside each week really does add up and the sooner you start the sooner you will have a nice chunk of change to put towards your deposit. We managed to save our deposit for our house by moving in with my dad for a year (a HUGE thank you goes out to dad for this!), plus we had both been saving a bit prior to seeing each other. Another idea is to rent a room out in your flat, sell some stuff you no longer use on Trademe, have a garage sale etc.

We were able to make room for some of the spending which mattered to us (food and travel would be on those lists – I had at least one overseas trip pretty much every year since I started working), yet put money aside that we could not touch. Opening a separate bank account that you cannot see and having a set amount going to it automatically every single pay definitely helps with this. Have a play with the savings calculators and see how much you can save if you set aside a small amount each pay.

// Kiwisaver – Savings
Kiwisaver was introduced in New Zealand almost 10 years ago in July 2007 and I’m sorry but if you were planning on getting on the property ladder and didn’t sign up for Kiwisaver then in my opinion you were a fool. Everyone who is in paid employment is automatically enrolled into Kiwisaver and you will stay in there unless you opt out.

Yes, for the first few weeks you miss that 2, 3 or 4% coming out of your pay each week (now 3, 4 or 8%), but after a month or two you don’t even notice it. There have been many changes to the scheme since it first started and the perks aren’t quite as good as they used to be, but you still get FREE MONEY just for saving.

If you had been with Kiwisaver since the beginning and had been on 3% contributions the whole way through and earned an average of $14 an hour (lower than the current minimum wage) you would have put in approximately $8700 now (not adjusted for any gains/losses/interest etc). Let’s add on the $1000 kickstart the government originally put in (no longer applies), which leaves you with $9,700. The government was also matching dollar for dollar up to $1042 for the first 5 years of the scheme and now it matches 50c on every dollar up to $521. Given that in this scenario you were only contributing $873 per year your new total is now $15,270. Then your employer has to match your contributions up to 3% (I can’t find stats from back when this started so for argument’s sake let’s say they contributed an average of 2% this entire time), this now leaves you with a total of a little over $20,000. Yes, you effectively could have made $12k just for being in Kiwisaver!

Didn’t join Kiwisaver? Then don’t be the person who still isn’t in it in 2017! Look at what difference 10 years can make. Plus if there are two of you, you could have doubled this and put it all towards your first home! And this is at the low end – for most professionals, if you have been earning substantially more than $14 per hour, or contributing more you would have made a lot more.

Take a look at the Kiwisaver calculators on Sorted.org.nz and see how much you could save if you started right now. Don’t forget to continue with Kiwisaver once you have purchased your first home as this will be a fantastic nest egg when you hit retirement age and the earlier you start the bigger it will be.

// Kiwisaver – First Home Buyers
We also have a great first home buyer’s scheme in New Zealand. If you are a first home buyer and meet a few other criteria you can take all the money out of your Kiwisaver and use it towards your first home (this is where most of our house payment came from!). The only thing you can’t take out is the $1,000 kickstart.

The next awesome part is the first home buyer’s withdrawal you can get from the government. Essentially if you have been in Kiwisaver for 3-5 years you can get $3,000 – $5,000 (per person buying the first home – so for us there were two of us) from the government towards the purchase of your first home! Now if you have taken any contributions holidays this time comes out of your total. Kyle had done some contributions holidays so he was only eligible for $3,000 where I had never had a holiday so was eligible for $5,000. Either way it was $8,000 towards our first home combined with our deposit we had saved, both of our personal savings and BOTH of our investments in Kiwisaver – along with my location, location, location tip which managed to get us our first home without any debt!

// Mortgage Calculators
One of the most important exercises I have ever done, was to dream about buying a house and to take a look at the mortgage calculators on sorted.org.nz and see how much I would be paying each week and over the course of the mortgage if I were to purchase a particular house I had been looking at.

The ‘how much interest will I pay’ calculator is well worth spending a few minutes playing around with it. For example, say you take out a $300,000 mortgage at an interest rate of 6% for 30 years – you will have fortnightly repayments of $830 and over the course of your mortgage you would have paid a whopping $646,852 for your house – that’s a staggering $346,852 in interest you have paid the bank.

There are many variables you can play with here – increasing your fortnightly repayments by just $100 means you will pay the same mortgage off in 23 years and pay a total of $550,410 saving you a whopping $96k over the course of your mortgage. Of course you are still paying $250,410 to the bank in interest over the 23 years!

Try having a play with these calculators and see how much you will really be paying for your house. It really is eye opening! Use the calculator and try seeing the difference between a $300k mortgage and a $250k mortgage, 6% interest and 8% interest (will interest rates going up 2% make it tough to make ends meet?), or increasing or decreasing your regular repayments.

I personally couldn’t bear to pay more than double the price of our property to the bank simply for them giving us a ‘loan’ to purchase our house. This meant that we either had to save a bucket load more money and wait even longer, or purchase a cheaper house. Which brings me nicely on to my next point…

// Location, Location, Location
Anyone reading this post who currently resides in Auckland will most likely be rolling their eyes and wondering how on earth they will ever be able to afford their own home – even with doing all of the above steps.

We realised that we would never own the home we wanted to in Auckland, we knew we would never deal with the commute that would be required to purchase a property anywhere near our price range or that we would be working 60+ hours a week each to pay for a house that we would never be at anyway.

Remember that location is a choice and a compromise. Yes, Auckland is a great place to live. No, it’s not the only great place to live. We chose to move back to Wanganui (a substantially smaller and cheaper town), as we knew that the cost of living was a lot less, pay rates weren’t actually dramatically less and we could get ahead a lot faster – plus purchase a house within a 10 minute drive to work, oh and 500m of the beach! If we ever want to go to Auckland it’s only a 1 hour flight away – which we can afford now because we aren’t paying through the roof for rent and transport etc.

Maybe you don’t want to leave the city you are currently in – you can still look to different areas that you may not have thought of before. Have a look around and expand your search area, sort the properties by the lowest price house and go and take a look at some. Sure some of them will be dumps that you would NEVER touch (we went through our fair share of them), but if you can think that a few tins of paint can make a huge difference (and not cost that much if you do it yourself) then you may just find a diamond in the rough.

This post was made possible thanks to Sorted.org.nz, all content and opinions are my own. The tools and calculators on Sorted.org.nz are free to use and are highly valuable tools I have used numerous times before and will continue to use.