Most people need to apply for a home loan to help pay for their house purchase. There are a number of different lenders in the marketplace ranging from trading banks through to finance companies and private banks. When dealing with a lender, mortgage broker or any financial advisor, we recommend you check they are compliant with the Financial Advisers Act 2009.
Each lender has a range of mortgage products available, all of which have different criteria, terms and conditions. Finding your way through this maze is not always easy. You should shop around and talk with lenders to get the most appropriate product for your particular circumstances.
Some people may prefer to use a mortgage broker to help them. Make sure that you get a broker who deals in the type of product that you want. For example, you may want a short notice loan so you need
to ensure your broker deals in that type of product.
When considering using a broker find out how you pay for their services. Most brokers are paid a commission by a lender, or others may charge you an extra fee. Check before you sign anything and talk with us if you would like advice.
A quick comparison of interest rates and products can be found on www.interest.co.nz
When considering a loan application a lender will want to ensure:
• You have enough income to meet the loan repayments and other outgoings. This is sometimes known as ‘debt servicing’. A lender will usually ask for a monthly budget to ensure you can afford the
mortgage repayments, and
• There is enough security in the property. Lenders sometimes refer to this as the ‘security ratio criteria’. It is the difference between the value of the property (which may be different from the price) and your personal contributions.
There is generally a two stage process to obtain housing finance.
You should approach a lender before looking to buy a home to establish how much you can borrow. This will establish the price range of the property you can afford.
A lender will need to have evidence of your gross income/s (generally a lender will accept a pay slip as proof of income), a monthly household budget and a statement of position which lists your assets, any liabilities and so on.
To help you in your preliminary calculations to work out how much you can borrow and afford to repay, most lenders have mortgage calculators on their websites.
To make your offer as ‘clean’ as possible, ie: as few conditions as achievable, you may want to obtain some formal pre-approval from a lender to make your offer up to a particular sum. Talk with your lender about this.
When the Agreement is signed you should immediately lodge a formal loan application with your chosen lender. At that stage, your lender will need a copy of the Agreement; some lenders may need a copy of the title for the property.
If the amount sought exceeds your lender’s security ratios, they may need a registered valuation of the property before confirming a loan.
It is important to note that even if a lender has indicated a loan will be approved before the Agreement is signed, the Agreement should still be made conditional on ‘obtaining fi nance satisfactory to the purchaser’, unless you have a formal written loan offer from a lender.
It would be unwise to simply rely on a verbal indication from your lender that a given sum will be lent.
Lenders have slightly different lending criteria. If one lender turns your application down, another may be able to help.
Even if your borrowing exceeds the security ratio, some lenders may still lend where mortgage guarantee insurance cover is arranged. This insurance is taken out at your cost to protect the lender.
It may also be possible to ‘massage’ your fi nancial debts by increasing your borrowing to repay short term credit card and hire purchase debt to bring you within the lender’s criteria. This may be nvestigated if the lender initially declines a loan.
Please contact Tina McLennan, Anna Ferguson or Jo McLennan for more information.