You've saved some money. You've been browsing houses online. You've started describing your ideal place as having 'good bones', despite having no idea what that means.
Congratulations. You may have caught the first-home buyer bug.
If you've looked into buying a house in New Zealand, you've probably heard plenty about deposits. Save 20%. Maybe 10%. Perhaps even 5% if you meet the right criteria.
But here's something that doesn't get nearly as much attention: your deposit is only one part of the story.
Mortgage lenders also consider income, existing debt, everyday expenses and whether the proposed repayments would be affordable. Which means some of the decisions you're making well before house hunting could influence the opportunities available later.
You don't need a perfect answer to all four. They're simply a better starting point than guessing what your dream house might cost.
Imagine a home costs $700,000. A 20% deposit would be $140,000, while 10% would be $70,000. A 5% deposit would be $35,000.
Those are very different savings goals. Some people may be able to buy with less than a 20% deposit, depending on their circumstances and the lender. For example, Kāinga Ora's First Home Loan allows eligible buyers to purchase with a minimum 5% deposit, subject to other requirements.
But a smaller deposit doesn't necessarily make the mortgage easier to afford. You could be borrowing much more and facing different loan conditions or costs.
No matter how much you've saved, a lender still needs to consider whether you can afford the repayments.
Imagine two people with the same income and the same $50,000 deposit.
One has no personal loans or credit cards. The other has a car loan, a personal loan and a credit card balance.
They might have identical savings balances, but their financial commitments are different. Mortgage lenders consider what you're already required to repay when assessing affordability.
That doesn't mean having debt automatically rules you out of buying a home. It means those repayments matter.
Say you have a personal loan requiring $120 a week. Over a year, that's $6,240 in repayments going towards an existing commitment.
Paying it off might give your household more flexibility. It doesn't mean your mortgage borrowing capacity automatically increases by $6,240, because lenders assess borrowing capacity in a more detailed way. Sometimes progress towards home ownership looks like having more in savings. Sometimes it's having fewer repayments competing for each payday.
You could have a credit card with a $10,000 limit and only $200 owing. To you, that's a nearly empty card.
A mortgage lender may nevertheless consider the available credit limit, not just the current balance. Different lenders assess these commitments in different ways.
It's worth reviewing unused facilities and understanding whether you still need them. Before closing a facility or making substantial changes specifically for a mortgage application, ask your mortgage adviser what matters for your circumstances.
Lenders need to consider how the proposed mortgage would fit alongside your normal spending. That includes housing, groceries, insurance, transport, childcare and all the other things ordinary life involves.
This isn't really about the flat white you bought last Tuesday. Despite what the internet sometimes suggests, the difference between renting and owning a home is rarely explained by someone's taste in coffee.
The useful question is whether there's enough room in your finances for the mortgage and the costs that come with it. If you're curious, look back over several months of spending.
Most of us have two budgets: the one in our heads, where we're extremely sensible, and the one in our bank statements, which occasionally has some explaining to do.
Neither is a moral judgement. The point is to understand the numbers so you can make decisions that actually work.
One of the biggest differences between renting and owning is that certain things become your problem.
Rates, insurance, maintenance and repairs. That mysterious noise from the hot-water cylinder? Congratulations, it's now your mystery!
Buying itself can involve legal fees, building inspections, a LIM report, moving costs and, depending on the property, other fees. Some properties also have ongoing body corporate costs.
Having some money available beyond the deposit can give you room for those costs and for the inevitable moment when the fridge and car decide to break in the same week.
No-one can be prepared for every possible disaster, but having enough slack for the unexpected rather than being in a situation where absolutely everything needs to go right for the budget to work is crucial.
Absolutely. But I guess you'd expect us to say that!
Saving a deposit is important, but improving your overall financial position might also involve reducing expensive debts, simplifying repayments or building a buffer.
For example, if you're saving $100 a week while carrying a high-interest credit card balance, it may be worth comparing the cost of that debt with the benefit of keeping all of the money in savings.
There isn't a single right answer for everyone. Your timeframe, interest rates, emergency savings and other circumstances all matter.
What about debt consolidation? Bringing debts together may sometimes simplify repayments or reduce costs, but a smaller repayment doesn't automatically mean a cheaper loan. Compare the total repayment amount, loan term and fees, and discuss any borrowing changes with your mortgage adviser if home ownership is an active goal.
A new loan isn't a shortcut to mortgage approval.
When the news says first-home buyers are finding opportunities, it's tempting to think you should hurry up and buy something.
But a good market opportunity is only a good opportunity for you if the ongoing costs and commitments work for your circumstances.
Perhaps your next step is to speak with a mortgage adviser. Perhaps it's paying down a particular debt, setting up an automatic savings transfer or spending another year getting comfortable with your household budget.
And perhaps buying a house isn't your priority right now. That's also a valid choice.
At Money Sweetspot, we're interested in the opportunities people want their money to help them create. Home ownership is one of those goals, but it isn't the only one.
The most useful financial decisions aren't always dramatic. Sometimes they're the ones that give you options you didn't have before.
And one day, you might find yourself standing in your own house, wondering why the previous owners painted the bathroom that particular shade of green.
At least it'll be your bathroom.
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