First Home Loan NZ: How to Buy Your First Home With a 5% Deposit
Do You Really Need a 20% Deposit to Buy a House in NZ?
No.
A 20% deposit certainly has advantages. You'll generally have access to more lending options and may avoid the additional costs associated with low-deposit lending.
But 20% isn't a universal minimum deposit requirement.
The Reserve Bank's current LVR rules allow banks to undertake some owner-occupier lending above 80% LVR — in other words, lending to people with less than a 20% deposit. Kāinga Ora First Home Loans are also exempt from the Reserve Bank's LVR restrictions. Reserve Bank of New Zealand
That's an important distinction.
Over the years, discussion around LVR restrictions has, in my view, contributed to many buyers interpreting "20% deposit" as "you cannot buy until you have 20%."
That's simply not always the case.
And I'd rather you made that decision based on facts — not assumptions.
What Is the First Home Loan?
The First Home Loan is designed to help eligible buyers purchase a home with a minimum 5% deposit.
The loans are issued by participating banks and lenders and underwritten by Kāinga Ora. You still need to satisfy the lender's credit and servicing requirements — the scheme doesn't guarantee that your application will be approved. Kāinga Ora – Homes and Communities
For someone buying an $800,000 home, the difference in deposit is significant:
20% deposit = $160,000
5% deposit = $40,000
That's a $120,000 difference.
It demonstrates why it's worth investigating your options before assuming you're years away from buying.
First Home Loan Income Limits in 2026
One of the first things I'll establish with a client is whether they potentially qualify for the First Home Loan.
As at October 2026, Kāinga Ora's income limits are:
$95,000 or less before tax over the last 12 months for an individual buyer without dependants
$150,000 or less for an individual buyer with one or more dependants
$150,000 or less combined for two or more buyers, regardless of the number of dependants. Kāinga Ora – Homes and Communities
There's an important detail here that I find buyers sometimes misunderstand.
It's Your Income From the Last 12 Months
The eligibility test looks at your before-tax income earned over the last 12 months.
It isn't simply your annual salary today. Kāinga Ora – Homes and Communities
For example, imagine a couple has recently received pay increases and their new combined annual salaries are now $155,000.
They might immediately assume:
"We're over the $150,000 limit, so we can't qualify."
But if their actual combined gross income earned during the previous 12 months was $145,000, they may still satisfy the income test.
That's why I don't want clients ruling themselves out based solely on their current annualised salary.
There are other eligibility requirements too, including residency, ownership and property requirements, so income is only the starting point. Kāinga Ora – Homes and Communities
Where Can Your 5% Deposit Come From?
Another misconception is that the entire 5% must necessarily have been personally saved in a bank account.
Kāinga Ora states that the minimum 5% deposit can include savings, first-home withdrawals and gifts. Its current First Home Loan material also refers to investments as part of the evidence of deposit that may be provided. Kāinga Ora – Homes and Communities
In the applications I work with, the deposit can potentially be assembled from sources such as:
KiwiSaver
cash savings
a family gift
shares or investments
proceeds from selling an asset.
The exact source still needs to be disclosed and acceptable to the lender.
But don't assume that because you haven't personally saved the entire 5% in cash, you can't investigate a First Home Loan.
Having 5% Doesn't Automatically Mean You'll Be Approved
This is where an important distinction needs to be made.
Kāinga Ora determines the First Home Loan eligibility framework, but the participating lender still decides whether it is prepared to lend you the money.
Kāinga Ora specifically notes that lenders have their own credit criteria and may assess your ability to repay, current debts and credit history. Different participating lenders can apply somewhat different credit criteria. Kāinga Ora – Homes and Communities
This is something I see in practice.
Debt, in particular, can make a significant difference to a 5% application.
In my experience, most of the participating lenders I deal with generally don't want First Home Loan applicants carrying more than around $10,000 of consumer debt, although this is not a universal Kāinga Ora rule.
I currently deal with one participating lender that may consider applications with debt above this level.
That's why being declined — or not fitting the criteria — at one lender doesn't necessarily mean another participating lender will reach exactly the same conclusion.
Sometimes the answer isn't "no."
It's: "Here's what we need to fix first."
And that's a very different conversation.
Credit Cards, Car Loans and Buy Now, Pay Later Can Matter
When you only have a 5% deposit, I want the rest of the application to be as strong as possible.
That means looking carefully at things such as:
Credit cards: Even if the balance is low, the available limit can affect borrowing capacity.
Car loans and personal loans: Monthly repayments reduce the money available to service a mortgage.
Buy Now, Pay Later: These commitments can affect cash flow and may also tell a lender something about the way an applicant manages money.
Account conduct: Missed payments, dishonours, persistent overdraft use or consistently spending everything before payday can weaken an application.
This is why I encourage first-home buyers to talk to me before they think they're ready.
You don't need to have everything perfect. You just need to understand where you stand — and what, if anything, needs to change.
Can You Demonstrate That You Can Afford the Step Up?
This is one of the most useful exercises I give prospective first-home buyers.
Let's say you're currently renting.
Your mortgage will probably cost more than your rent — and once you own the property, you'll also have council rates, home insurance and maintenance.
I therefore want to know whether you can comfortably manage that step up.
As a practical exercise, I often suggest clients calculate:
Estimated mortgage repayment at approximately 2% above the prevailing mortgage rate
estimated council rates
estimated home insurance − current rent = an indication of the additional amount to start saving
The 2% figure is my practical rule of thumb based on lending experience; it isn't a universal assessment rate used by every bank.
For example, if your current rent is $2,800 per month and the exercise suggests homeownership would require another $1,500 per month, try putting that additional $1,500 into savings.
You're achieving two things.
First, you're building your deposit and financial buffer.
Second, you're demonstrating — to yourself and to a lender — that you can actually live with the higher commitment.
I would much rather discover before buying that a proposed mortgage makes your household budget uncomfortable than have a client discover that after they've moved in.
Can You Get Pre-Approved With a 5% First Home Loan?
Yes. Kāinga Ora specifically provides for both pre-approval and final approval under the First Home Loan. Kāinga Ora – Homes and Communities
I think pre-approval can be extremely valuable.
It gives you an indication of how much a participating lender is prepared to lend before you start seriously looking for properties.
That means instead of spending every weekend looking at $850,000 properties when the bank will only support a $750,000 purchase, you have a realistic price range from the beginning.
Pre-approval still isn't final approval of the property. Once you've found a home, the lender needs to be satisfied with the property and any remaining conditions.
But it gives you a much better starting point — and a lot more confidence when you're out there looking.
What If You Don't Qualify for the First Home Loan?
This is where things get interesting.
You may have a 5% deposit but not qualify for the First Home Loan — for example, because your income exceeds the scheme's limit.
That doesn't necessarily mean you need to wait until you have 10% or 20%.
As at October 2026, BNZ's low-deposit home lending information confirms that it has low-deposit options for first-home buyers with at least a 5% deposit. BNZ
This is outside the Kāinga Ora First Home Loan scheme.
Based on the applications I'm currently dealing with, I would generally want to see a strong overall application, including good servicing, low consumer debt, good account conduct and demonstrated ability to save above the client's current rent.
There's an Important Difference: Pre-Approval
The 5% BNZ lending I'm currently working with is generally a live-deal proposition rather than a 5% pre-approval.
In other words, the clients find the property and the application is then assessed.
That creates a challenge.
I don't want clients looking at houses based on guesswork.
So I effectively need to become a little like the bank beforehand.
I'll do a detailed assessment of the clients' income, deposit, debts, expenses and likely servicing position. I'll also build in a safety margin.
I'm deliberately conservative about the maximum loan I suggest a client targets in this situation.
My assessment isn't a bank approval and can't guarantee that BNZ will approve the eventual application.
But I want to do everything reasonably possible to avoid clients pursuing a property that never had a realistic chance of being financed.
First Home Loan vs Other 5% Lending: What's the Difference?
There can be a material difference in cost.
With a First Home Loan, Kāinga Ora underwrites the loan, which allows participating lenders to provide loans that might otherwise sit outside their normal lending standards. Interest rates and fees still vary between participating lenders. Kāinga Ora – Homes and Communities
The First Home Loan does have a Lenders Mortgage Insurance (LMI) premium of 1.2% of the loan amount.
So on a $500,000 mortgage:
$500,000 × 1.2% = $6,000
Kāinga Ora confirms that the premium can be paid upfront or added to the loan. Kāinga Ora – Homes and Communities
BNZ's standard low-deposit lending works differently.
BNZ currently publishes a 1.20% per annum low-equity interest-rate premium for loans between 90.01% and 95% LVR. Its published premium falls as the LVR reduces. BNZ
That's an important distinction.
The First Home Loan's 1.2% LMI premium is a one-off amount based on the loan, whereas BNZ's 1.2% figure at a 90.01%–95% LVR is an annual interest-rate premium while the applicable low-equity pricing applies.
So don't look only at whether you can obtain a 5% loan.
Ask: "What is this 5% loan actually going to cost me?"
The Property Still Has to Be Acceptable
A common mistake is concentrating entirely on whether you qualify and forgetting that the bank also has to accept the property.
With a 5% deposit, I tell clients to be particularly careful around properties such as:
apartments
leasehold properties
lifestyle blocks
properties with unconsented alterations
unusual construction
properties requiring significant maintenance
anything a lender may consider difficult or non-standard security.
With First Home Loan applications, I also pay close attention to deferred maintenance. In my current lending experience, around $10,000 of identified deferred maintenance can become an important security issue for Kāinga Ora.
I haven't found that $10,000 threshold stated in Kāinga Ora's public First Home Loan information, so I would treat it as a current practical underwriting consideration rather than a published universal rule.
This is another reason to have the property checked before committing yourself.
What About Buying at Auction With a 5% Deposit?
You can potentially bid at auction with a 5% deposit.
But there's a practical issue I discuss with clients.
An auction is normally unconditional, so you need to complete the appropriate due diligence before bidding. Official Kāinga Ora guidance also says that buyers wanting to bid at auction should have their home loan fully approved beforehand and discuss the requirements with their solicitor and lender. Kāinga Ora – Homes and Communities
Depending on the property and lender, you could therefore spend money on things such as:
a registered valuation
building inspection
LIM
solicitor's review
other property checks.
Then you arrive at the auction and someone outbids you.
You have no property — and you've still paid for the due diligence.
For someone with plenty of spare cash, that may be frustrating.
For a first-home buyer who has worked hard to accumulate a 5% deposit, doing this repeatedly can start eating into the funds available to buy.
So my advice isn't: "You can't bid at auction with 5%."
It's this:
You can buy at auction with a 5% deposit. The question is whether you're comfortable paying for all the necessary due diligence before the auction when there is no guarantee you'll be the successful bidder.
Should You Wait Until You Have a 20% Deposit?
Maybe.
But don't make that decision based solely on the belief that 20% is compulsory.
Suppose you can buy today with 5%, but reaching 20% will take another three years.
There are several things worth considering:
How much rent will you pay during those three years?
What happens if house prices change?
What happens if interest rates or bank servicing criteria change?
What could happen to your income?
And what is the additional cost of buying now with low-deposit lending?
Waiting can absolutely be the right decision for some buyers.
But waiting has a cost too.
The decision should be based on your overall financial position and options — rather than an arbitrary belief that you haven't "saved enough" until you reach 20%.
A 5% Deposit Is Not the Same as Being Mortgage-Ready
This is probably the most important point in this article.
Having 5% doesn't automatically make you ready to buy.
But having less than 20% doesn't automatically make you not ready either.
When I assess a first-home buyer, I want to understand the complete picture:
How much deposit do you have?
Where did it come from?
What did you earn during the relevant previous 12 months?
How much debt do you have?
What do your bank accounts look like?
Can you demonstrate that you can afford the step up from rent to homeownership?
What property are you buying?
And which lender or low-deposit pathway best fits your circumstances?
Only then can we start answering the question that really matters:
Could you actually buy now?
Don't Spend Another Three Years Saving Based on an Assumption
After all my years working with home loans, I'm still surprised by how many first-home buyers tell me:
"We thought we needed 20%."
Sometimes they're right to keep saving.
Sometimes they need to reduce debt first.
Sometimes their income doesn't support the amount they want to borrow.
But sometimes they're much closer to buying than they realised.
I believe that people who take the time to find out where they actually stand — rather than assuming the worst — are the ones who make genuinely confident decisions. That's who I'm here for.
Here's the truth:
A 5% deposit doesn't mean you'll automatically qualify for a home loan. But it also doesn't mean you should automatically spend another two or three years saving because you think 20% is compulsory.
Find out what's possible first.
Find Out Where You Stand
If you're saving for your first home and you're not sure whether your deposit, income and current financial position could be enough, start with my free 3-Minute Mortgage Quiz.
It's a safe place to start — no judgment, no pressure, just clarity on where you stand and what your next step could be.
Take the Free 3-Minute Mortgage Quiz
This blog provides general information only and is not personalised financial advice. First Home Loan eligibility, lender credit policies, interest rates, fees and low-deposit lending criteria can change. Your application and property will need to meet the relevant lender's requirements.