KiwiSaver stumbling blocks

Pictures/Supplied/GettyImages

Prices have got away from many first home-buyers who often have their eye on anything except a humble starter home in the less desirable suburbs.

Even so, many thousands of Kiwis have used their KiwiSaver funds to help buy their first home.

There are two main ways KiwiSaver can be used to buy first homes. The first is the Home Start grant, which is up to $5000 for singles to buy their first second-hand home, or $10,000 for new one (double that for couples).

The second package is first home withdrawals. Anyone buying their first home qualifies for this.

Sadly some Kiwis make mistakes when applying for one of these schemes and end up without the KiwiSaver money they were expecting.

That can be painful if you've already signed the sale and purchase agreement.

Here are some tips to help you avoid some common (and not so common) pitfalls:

■You must be a first home buyer or in the same position financially as a first home buyer. See Tinyurl.com/secondtimebuyers

■HomeStart is usually paid out on settlement and won't be paid out if settlement has already occurred. Housing New Zealand requires at least 20 working days to process the application.

■You can't use KiwiSaver money to buy an investment property.

■The HomeStart grant has income caps of $85,000 for one person or $130,000 for two or more people. Previous home owners only qualify if they have realisable assets of less than $120,000 in Auckland and between $80,000 and $100,000 elsewhere.

■There is a price cap on the HomeStart grant. In Auckland the maximum is $600,000 for existing properties and $650,000 for new homes. Elsewhere in New Zealand the grant ranges from $400,000 to $550,000. There are plenty of decent homes for far less than this in many regional areas or on the outskirts of Auckland.

■If you're having a first home built for you, the grant may be paid prior to settlement, but the money will be held in trust or escrow until settlement.

■A "new home" is one that received its building code compliance certificate less than six months before the grant application date.

■You must apply to your KiwiSaver provider for first home withdrawals, not Housing New Zealand.

■You can't withdraw the government's $1000 kick start nor any annual tax credits you've received.

Anyone who plans to use their KiwiSaver money for their first home should check out hnzc.co.nz to see the latest rules and to also sign up a mortgage broker and lawyer early.