Getting to Yes with your lender
So you’ve got your deposit sorted and you’re ready to go to the next stage of getting a Pre-Approval from a Bank or other lender. There are a few things you need to know in order to improve your chances of getting that approved stamp on your application. Banks require a lot of information about you, your income, your employment history, and how you manage your money. Be prepared for personal questions about your circumstances and a review of all transactions on your bank statement. You may well ask yourself – do they really need to know all this stuff? The answer is probably YES – consider if a total stranger came to you and asked you to lend them $400,000.00 – What would you want to know about them before you handed over the money? Probably all the questions the bank are about to ask you 🙂
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So what exactly is a Pre-Approval?
A pre-approval is provided by a lender in writing, confirming that subject to certain specified conditions being met, that you may be able to borrow up to a specified sum. This is also known as a ‘conditional offer’ of finance. When you receive your pre-approval – carefully check and ensure that you understand each of conditions and what must be done to meet these. Standard conditions as an example are; Registered Valuation satisfactory to the bank, copy of signed sale and purchase agreement satisfactory to the bank. In order to obtain a strong pre approval you should provide as much information/documentation as necessary when submitting your application. The strongest pre-approvals usually have the least number of conditions attached.
Bank or Mortgage Broker?
You can go directly to your existing bank, or any other lender to submit a Home Loan application. This can usually be done with a bank lender at a branch, over the phone or online. Additionally some banks have Mobile Mortgage Managers who can meet with you at a place of your choosing on weekends and after hours. A benefit of dealing direct with the bank is that you may get an outcome to your application earlier than via a broker.
So why would you use the services of a Mortgage Broker?
Mortgage Brokers are usually free and can save you a lot of time and money. Not all banks have the same lending criteria and whilst one bank may decline your loan another may approve it. Having a mortgage broker working for you means that you only need to complete one application and then leave your broker to shop around the banks to get your pre-approval. Additionally, in order to get the best rates, you really do need to shop around, again your Mortgage Broker will do this for you! Whilst rates are important, ensuring that your home loan is structured well can save you thousands of dollars and get you mortgage free sooner, a good Mortgage broker will assist you with this too! If you decide to use the services of a Mortgage Broker it pays to check out their credentials and experience to make sure you have a broker who is qualified to help you. Mortgage Brokers are now required by law to be registered. You can check to see if your Broker is registered by going to the Financial Markets Authority website (FMA) http://www.business.govt.nz/fsp/app/ui/fsp/record/searchFsp.do Registered Financial Advisors are also required to provide all clients with a disclosure statement covering the following;
- Type of Advisor they are (Authorised or Registered)
- Where to go if something goes wrong.
- How they are regulated
A broker should also disclose, how they get paid, and that they are governed by the Privacy Act which means that your personal information will only be disclosed to relevant parties as part of the application process (ie Banks/lenders/Credit Agencies)
For help guiding you through the journey to home ownership of your first home get in touch with us today for a free planning meeting to tailor a Home Ownership Plan tailored to your needs.
The Seven Secrets of getting to YES!
|Size does matter! The bigger the deposit you have, the better your chances – particularly if your deposit is 20% or greater!|
|Keep it Clean! Clear Credit Checks – If you have any outstanding defaults the bank will usually require these to be paid before they consider your application. Any paid defaults will require an explanation. We recommend that if you have any outstanding defaults that you pay them before you submit your application to the bank. You can obtain a FREE credit check from https://www.checkyourcredit.co.nz/ Banks use credit checks as a way of checking on your credit history. Often a person’s past behaviour can be a predictor of future behaviour. Banks do decline loans based on a person’s credit history. What are banks looking for on credit checks?
|Less is More! The less debt you have the better your chances! The more debt you have the less you will able to borrow. If you pay off the full balance of your credit card each month – the bank will not allocate a portion of your income to service the credit card. If on the other hand you only pay the minimum or less than the full amount owing, the banks will allocate 2-3% per month of your credit card LIMIT (not the balance) to service the debt.|
|Show some Love! Whilst assessing a loan application, banks will scrutinise your bank account (usually the most recent 3 months bank statements). In particular they are looking at how well (or not) you manage your account. Do you have dishonours, and or unauthorised overdrafts. The better your account conduct the better your chances! We recommend that if you’re a bit busy to keep a real close eye on those accounts that you get a small overdraft limit – just in case! That way it keeps the bank happy and saves you on high interest and honour fees!|
|Have some leftovers! Banks will review your income versus your expenses (many will use a living expense formula based on the number of applicants and dependants). Ideally you will have a surplus of income once expenses have been deducted. The bigger the surplus the better!|
|Steady as she goes… Banks will look at your employment record – have you been steadily employed, do you change jobs frequently? The more stable your work history the better the banks will like it. If you are self-employed the bank will want to see at least one end of year financial records but preferably two.|
|Saving for a rainy day! Banks will review your savings history – if you can demonstrate regular and ongoing savings history, this will help prove that you are able to manage on your income and have capacity to save.|
Tips for improving your chances with the Bank
- Prepare a budget which can be submitted to the bank at time of application
- Prove you can save the difference between your rent and the proposed mortgage repayments as well as insurance and rates.
- Manage your money well – ensure that you keep within your arranged facilities with the bank. Ensure that you don’t have any unauthorised overdrafts.
- Ensure you disclose all debt that you have – any undisclosed debt that later comes to light can hurt your chances of getting a loan.
- Check out your credit rating before the bank does, that way you will know if there are any issues to address before submitting your application.
- Visit https://www.checkyourcredit.co.nz/MyAccount/Order/StandardService
Documents you will need for pre approval application
- ID – Preferably Passport and or Drivers License
- Address Verification (Bank statements showing address or utility bill held in applicants name)
- 3 Months most recent and consecutive bank statements for your current account
- Evidence of Deposit (ie Bank statement/Confirmation of KiwiSaver withdrawal/Gifting letter)
- Evidence of income (ie 3 Payslips/Copy of employment Contract, or for self employed end of year financial statements)
Documents Required for Welcome Home Loan Pre Approval
- 3 most recent and consecutive pay slips
- Letter from Employer confirming employment
- ID – Passports preferred option
- Evidence of NZ Citizenship or residency – either passport or NZ Birth Certificate
- 6 months bank statements and
- 3 months credit card statements
- Evidence of Deposit (ie Bank statement/Confirmation of KiwiSaver withdrawal/Gifting letter
- Address verification (Bank statements showing address or utility bill held in applicants name)