Purchasing your first home can be a minefield of talking to banks, mortgage brokers, real estate agents, builders and lawyers. You may be using funding from a variety of sources such as personal savings, bank lending, a Kainga Ora Home Start Grant, contributions from your whanau, or a KiwiSaver withdrawal.
If you are considering making a withdrawal from your KiwiSaver to fund part of your purchase, there are a few things you should know and several things your lawyer can advise you on.
How to use your KiwiSaver funds to purchase property
Before putting together an application, you need to decide whether you will use your KiwiSaver funds as part of an initial deposit on a property or contribute to the final settlement payment. It would help if you discussed this with your lawyer prior to signing a sale and purchase agreement so that you can ensure there is enough time for your application to be completed and processed before the funds are needed.
Depending on your specific agreement, your deposit will generally be due once the agreement becomes unconditional, so you would need to complete your application before satisfying those conditions. If you are using your KiwiSaver funds to pay the settlement sum, your application can be made once your conditions are satisfied and your agreement has become unconditional.
Getting the timing right
The most crucial timeframe to remember with your KiwiSaver application is ten working days. This is the amount of time you need to allow for your KiwiSaver provider to process your application and arrange for your funds to be paid out. This means that you and your lawyer will need to count backwards to make sure you can complete your withdrawal application prior to the date you require any funds. If you have lived overseas since you became a KiwiSaver member, some providers require 15 working days to complete your application, so it is always a good idea to check this with your provider before making an offer on a property.
Who is eligible?
To withdraw funds from your KiwiSaver to purchase property, you will need to have been a member of a KiwiSaver scheme for at least three years before making an application to withdraw funds. You will also need to be using the funds to purchase a property that you will live in. This can be for the purchase of an existing home or for the purchase of land that you will be building your own home on, as long as you are purchasing the property to live there (and your KiwiSaver funds are being used for the purchase of the land, not for your building or other costs).
You cannot make a KiwiSaver withdrawal if you currently own land. However, if you have owned property in the past, you may still be eligible to withdraw KiwiSaver funds under what is known as a ‘Second Chance’ withdrawal, which involves an application to Kāinga Ora to determine your eligibility. Kāinga Ora will review this based on whether you are in a similar financial position to a first home buyer. That application will need to be made prior to your application to withdraw your KiwiSaver funds, as you will need a letter from Kāinga Ora confirming you are eligible to make a Second Chance withdrawal.
How much will I receive?
If you are also getting a mortgage to fund your property purchase, as part of your loan approval, the bank may ask you how much money you will be receiving from your KiwiSaver. This is a tricky question to answer as your KiwiSaver fund fluctuates daily, depending on factors such as your contributions, fees and investment funds, so the final amount that you can withdraw is generally not calculated by your KiwiSaver provider until the date that it is paid out.
You can estimate this yourself prior to making an application if you know the current balance of your KiwiSaver. In most cases, you will be able to withdraw all bar $1000 and any funds that have been contributed from Australian superannuation schemes. It is helpful to keep this estimate in mind when planning how you will finance your purchase.
You can also contact your KiwiSaver provider for written confirmation of how much you can expect to receive from your KiwiSaver if you make a withdrawal application. This letter can then be provided to your bank to show the amount you expect from your KiwiSaver.
The application process
Your KiwiSaver provider will have their own form that will need to be completed in order to access your funds. In general, the form will contain questions about your identity and eligibility to make the withdrawal. You will be asked to provide supporting documentation such as the sale and purchase agreement or a letter of eligibility from Kāinga Ora if you are a Second Chance home buyer.
You will need to sign your application form in front of a lawyer, who can then apply on your behalf, along with the supporting documentation.
FOR MORE INFORMATION
For assistance with making an application for a KiwiSaver withdrawal and advice on purchasing your first home, please contact a member of our property team.