A first home buyer purchases a $750,000 property using KiwiSaver withdrawal of $45,000, HomeStart grant of $10,000, and family gift of $20,000. What is the minimum cash deposit they must contribute from other sources to meet 10% deposit requirements?
Correct Answer
A) $0
The 10% deposit requirement is $75,000. With KiwiSaver ($45,000), HomeStart grant ($10,000), and family gift ($20,000), they have exactly $75,000, so no additional cash deposit is required from other sources.
Why This Is the Correct Answer
Option A is correct because the total available funds exactly meet the 10% deposit requirement. The property costs $750,000, so 10% equals $75,000. The buyer has KiwiSaver withdrawal ($45,000) + HomeStart grant ($10,000) + family gift ($20,000) = $75,000 total. Since this precisely matches the required deposit amount, no additional cash contribution from other sources is needed. All three funding sources are legitimate and acceptable for deposit purposes under New Zealand lending guidelines.
Why the Other Options Are Wrong
Option B: $5,000
Option B incorrectly suggests the buyer needs an additional $5,000. This miscalculation likely stems from either incorrectly computing the 10% requirement or failing to properly account for all available funding sources. The arithmetic shows that $45,000 + $10,000 + $20,000 = $75,000, which exactly equals the required 10% deposit of $75,000, leaving no shortfall.
Option C: $10,000
Option C suggests a $10,000 shortfall, which represents a significant calculation error. This might result from excluding one of the funding sources (likely the HomeStart grant) from the calculation. When all legitimate deposit sources are properly included, the total available funds meet the full requirement without any additional contribution needed.
Option D: $15,000
Option D indicates a $15,000 shortfall, suggesting either multiple calculation errors or misunderstanding of acceptable deposit sources. This could result from excluding both the HomeStart grant and family gift, or miscalculating the required deposit amount. The correct arithmetic clearly shows no additional funds are required.
Deep Analysis of This Finance Question
This question tests understanding of deposit requirements and acceptable funding sources for first home buyers in New Zealand. The 10% deposit requirement is a standard lending criterion that protects both lenders and borrowers from excessive leverage. The question demonstrates how various government schemes (KiwiSaver withdrawal, HomeStart grant) and family assistance can combine to meet deposit requirements without additional personal savings. This reflects New Zealand's policy framework designed to assist first home buyers who may struggle to accumulate traditional deposits. Understanding these funding sources is crucial for real estate agents as they often advise clients on financing options and need to accurately assess buyer readiness. The calculation requires precise arithmetic and knowledge of what constitutes acceptable deposit sources under lending guidelines.
Background Knowledge for Finance
New Zealand's first home buyer assistance includes KiwiSaver withdrawal (up to $10,000 plus returns for eligible members), HomeStart grants (up to $10,000 for existing homes, $20,000 for new builds), and acceptance of family gifts as legitimate deposit sources. The 10% deposit requirement is standard for most home loans, though some lenders may require higher percentages. Real estate agents must understand these funding mechanisms to properly advise clients and assess genuine buyer capacity. The Property Law Act 2007 and various government housing policies establish the framework for these assistance schemes.
Memory Technique
Think of building a deposit like stacking blocks: KiwiSaver (K), HomeStart (H), and Family gift (F) stack up to reach the 10% target. Visualize these three blocks perfectly filling a container labeled '10% Required' - when they fit exactly, no additional blocks (cash) are needed.
When you see deposit calculation questions, immediately identify and 'stack' all available funding sources (KiwiSaver, grants, gifts) before determining if additional cash is needed. If the stack reaches the required height (10%), the answer is zero additional cash required.
Exam Tip for Finance
Always calculate the exact deposit requirement first (property price × 10%), then add up ALL available funding sources before determining any shortfall. Don't forget that KiwiSaver withdrawals, government grants, and family gifts all count toward deposit requirements.
Real World Application in Finance
Sarah, a first-time buyer, finds a $750,000 home. Her agent explains she can use her $45,000 KiwiSaver balance, qualify for a $10,000 HomeStart grant, and her parents offer $20,000. The agent calculates these total exactly $75,000 - the required 10% deposit. This knowledge helps the agent confidently advise Sarah she's ready to make an offer without needing additional savings, expediting her home purchase process.
Common Mistakes to Avoid on Finance Questions
- •Forgetting to include all funding sources in calculations
- •Miscalculating the 10% deposit requirement
- •Assuming additional cash is always needed beyond government assistance
Related Topics & Key Terms
Key Terms:
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