'You need a 20% deposit' – and other mortgage myths that might be holding you back

Frances Cook highlights some false beliefs around mortgages that could keep you renting for longer.

A tricky old thing about the mortgage world – it changes all the time. Which means that it’s easy to get confused about what’s possible and what’s not.

Time to run through some of these mortgage myths, and what the truth actually is these days.

Sure, this is the ideal, but it’s not a hard and fast requirement.

So if you feel like insane house prices, and the following big deposit, are what’s holding you back, then pay attention.

If you qualify for a Kāinga Ora First Home Loan, you might be able to put down as little as 5%.Or you can work with a mortgage broker or your bank, to see if you’d qualify for a 10% deposit.

Banks are allowed to sign off a certain amount of low deposit mortgages, and current records show most of them haven’t used up their full allowance. So they might be friendlier than you think.

Once you get into that home, pay down the mortgage as fast as you can to hit 20% equity, and you’ll likely get access to better interest rates too.

On this one, I want you to think of your bank like a slightly judgy parent.

They really do not like you having other debts when you apply for a mortgage. This includes credit cards, car payments, and AfterPay.

The only exception is a student loan, which is usually fine.

Even if you don’t use the credit card, it can be a big problem while you’re trying to get pre-approval.

Banks don’t just look at how much you owe. They look at your “credit potential”, as in, the limit on your credit card. Because technically, you could get into debt for that amount at any time.

So it’s often a good idea to bring any card limits down to only the amount that you use, before you apply for that mortgage.

Ironically, many banks will then offer you a credit card as part of your new mortgage. I didn’t say it made sense, just that it’s how it goes.

Yes, it can help to have someone splitting the costs with you. But it doesn’t have to be a romantic partner.

Increasing numbers of people are buying with siblings, friends, or their parents.

What’s key to making this work is the same thing that’s key before buying with a partner. A solid conversation about finances, expectations, and a sit-down with a lawyer to get all of that on paper.

If you’re not willing to share all of your financial information with someone, you’re not ready to buy a house with them.

Which holds true, whether or not you’re in a romantic relationship.

Here’s an underrated hack that can add up to $100,000 on to what you can borrow: having a boarder or flatmate.

Chat to a mortgage broker on this one, because it depends a bit on your income, and area. But it’s really worth knowing about.

The key is that this increases your income, so increases the amount the bank will calculate it’s possible for you to pay back each week.

So if you’re wanting a spare room for future life possibilities anyway, then consider filling it with a flattie for the first few years, to help you pay down that mortgage.

File this under “used to be true, but thankfully no longer”!

There were some lending rules a few years ago that made life really strict, and yes just a couple of subscriptions could get you put in the naughty box and denied a mortgage.

Thankfully those rules have now been amended, to a much saner balance.

Banks now assess your bills based on what’s “discretionary” (you could go without) and non-discretionary (you have to pay it, like food and power bills).

They then decide whether you could pay back your proposed mortgage based on your non-discretionary bills, and assume you’d cut the other spending if you need to.

House prices might still be steep, but once you’ve figured out some of these mortgage rules, it can be the difference that lets you get onto that property ladder.

The information in this column is general in nature and should not be read as personal financial advice.