Kāinga Ora First Home Loan: Who Qualifies and How It Works

A quick heads-up: The information in this article is designed as a general educational guide only and does not constitute personalised financial, tax, or legal advice. Because everyone's situation is unique (and bank policies change frequently), we recommend speaking with a licensed Financial Adviser to see how this applies to your specific circumstances. For full transparency on our terms of service, how we are remunerated by lenders, and any specific situations where a fee may apply, please read How We Get Paid.

The Kāinga Ora First Home Loan is a government-backed mortgage scheme that helps eligible New Zealanders buy a house with just a 5% deposit.

Unlike standard low-deposit bank loans, this scheme allows you to get competitive interest rates without paying the harsh penalty fees banks usually charge people with small deposits.

Kāinga Ora has launched several similarly named schemes over the years, which makes it very easy to get confused. Before we dive in, let’s clear up what is actually available today:

• First Home Grant: A scheme that gave buyers free cash towards their deposit. This was permanently cancelled in May 2024.
• First Home Partner: A shared-ownership scheme where Kāinga Ora bought a percentage of your house. This is permanently cancelled
• First Home Loan: A scheme allowing you to buy your own home with as little as a 5% deposit. This is fully active and the subject of this guide.

Now that we are clear on the differences, let’s go through exactly how the First Home Loan works, the strict criteria you must pass, and how it can save you thousands.

Why use the First Home Loan instead of a standard bank loan?

At first glance, the numbers can look confusing: why would you choose a 1.2% fee over a 0.75% fee?

The difference comes down to paying a fee once versus paying an extra penalty every single year.

If you go to a standard bank with less than a 20% deposit, they classify you as higher risk. To cover that risk, the bank adds an ongoing penalty to your interest rate—called a Low Equity Margin (LEM). This margin is typically an extra 0.25% to 1.20% loaded onto your carded interest rate, and you must keep paying it until you have built up 20% equity in the property.

With a Kāinga Ora First Home Loan, the bank waives that yearly interest penalty entirely and offers their discounted "Special" interest rates from day one. In exchange, you pay a one-off 1.2% fee.

Here is how the maths works in practice on a $500,000 mortgage:

• A standard bank loan (The ongoing penalty): With an extra 0.75% penalty margin, you pay roughly $3,750 in extra interest every year. If it takes you four years to reach a 20% equity position through principal repayments and capital gain, you will have paid around $15,000 in penalty interest.
• The First Home Loan (The one-off fee): You pay a single 1.2% fee of $6,000 added to your loan balance. You never pay an ongoing margin on your carded interest rate.

Even though 1.2% sounds higher on paper, you only pay it once. By year two, the First Home Loan has already saved you thousands of dollars compared to a standard low-deposit bank loan.

Find out more about the 1.2% LMI fee and how to calculate it here.

How does the scheme actually work?

Kāinga Ora does not lend you the funds directly; a participating bank does.

Kāinga Ora acts as an underwriter. They tell the lender: "Approve this 5% deposit loan, and if the borrower ever defaults, we will insure your losses."

Because Kāinga Ora takes on that risk for the bank, they charge that one-off 1.2% Lender’s Mortgage Insurance (LMI) fee. You do not need to pay this upfront in cash on settlement day; it is capitalised onto your total mortgage balance and repaid gradually alongside your normal home loan repayments.

The criteria to qualify

The First Home Loan has specific, non-negotiable eligibility criteria.

1. The Income Test

Your total before-tax income over the 12 months prior to application must be:

• $95,000 or less 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.

2. The Employment Test

Participating lenders require evidence of steady, stable income. Generally, you need to show:

• You have been in your current permanent PAYE role for at least 12 months.
• OR: You have been working in the same industry—or studying for that industry—for the last 24 months. (Time spent completing relevant tertiary study or apprenticeships counts towards your industry tenure).
• If you have started a new job, your employment agreement cannot contain an active 90-day trial clause.

3. Deposit & Asset Rules

• The 5% minimum: You must provide a deposit of at least 5% of the purchase price (comprising KiwiSaver, personal savings, or non-repayable family gifts).
• The $10,000 cash retention: You are permitted to retain up to $10,000 of your personal savings to cover conveyancing solicitor fees, moving costs, and initial living expenses.
• KiwiSaver flexibility: In previous years, borrowers were required to exhaust their entire KiwiSaver balance down to $1,000. Today, several participating banks allow greater flexibility and do not compel you to drain every cent.
• Secondary vehicles and non-essential assets: You are generally allowed to own one road vehicle per adult on the application. Any secondary vehicles—such as extra cars, boats, jet skis, campervans, or trailers—are assessed by the bank as realisable assets, and you may be required to sell them to fund your deposit.

4. Second-Chance Buyers

If you previously owned a property (such as prior to a relationship separation) but no longer hold an interest in any real estate, you can apply for "Second Chance" eligibility through Kāinga Ora. You will need to show that your financial position is comparable to that of a typical first-home buyer.

Find out more about whether you qualify as a Second Chance Buyer here.

Property rules and participating banks

1. Participating lenders: Not every bank offers the First Home Loan. Major retail banks offering the scheme include ASB, Westpac, and Kiwibank, alongside regional lenders and building societies such as SBS Bank, The Co-operative Bank, Unity, and Nelson Building Society (NBS).
2. Building a new home: You can use the First Home Loan to build a new dwelling, provided the build contract meets the lender's lending requirements.
3. Deferred maintenance restrictions: You cannot purchase a property requiring substantial structural repairs. If a pre-purchase building inspection reveals significant deferred maintenance (such as an active roof leak or timber decay), Kāinga Ora will decline security clearance.
4. No monolithic plaster properties: Houses built with direct-fix monolithic cladding during the high-risk era (roughly 1988 to 2004) are excluded due to weathertightness liabilities.
5. Owner-occupier requirement: The property must be purchased as your primary residence. It cannot be used to acquire an investment property, a commercial premises, or a home-and-income setup.

Working with an adviser

There are further operational nuances, policy variations, and credit criteria attached to the First Home Loan beyond the scope of this guide.

Because an application must satisfy both Kāinga Ora's statutory rules and the specific participating bank's credit and servicing policies simultaneously, structuring your application correctly from day one is critical.

Before committing to open homes, speak with the team at Home Loan Factory. We will assess your last 12 months of IRD earnings, verify your asset limits, and identify which participating lender is best suited to your profile.