For the first time in several years, first home buyers have accounted for a sizeable chunk of new mortgages, according to data released in June 2020 by the Reserve Bank of New Zealand. With record low interest rates and the removal of loan to value restrictions, many more first home buyers are seizing the opportunity to enter the property market. If you are considering buying your first home, take a look at these 5 things your mortgage adviser wants you to know before you apply for a mortgage.
1. Clear your short-term debt
Even with a stable income, short-term debt can be the biggest hurdle for many first home buyers when trying to secure a mortgage. When assessing home loan applications, lenders will factor in your credit history – how much you spend and how well you repay your debt - as well as your current credit limits.
Regardless of whether or not you use your full credit limit or you pay off your debt in full each month, lenders will still consider the total credit limit available to you when assessing your application.
While having short-term debt won’t necessarily exclude you from securing a mortgage, it could make it more difficult. A solution would be to reduce your credit limit to an amount that may be acceptable to the lender and pay off all of your short-term debt before applying for a mortgage.
2. Know how much you earn and how much you spend
To prepare for your mortgage application, have all of your documentation ready to present to your lender. If you haven’t already done so, create a budget. Lenders will want to know how much you earn – your income – and how much you spend – your expenses – on living costs each month and that you can realistically afford to pay a mortgage.
By creating a budget, you can ensure you don’t leave out any form of income you may receive and that you list all of your expenses accurately.
You’ll need to show three months’ income in the form of pay slips or, if you’re self-employed, both your profit and turnover for your business in the form of financial statements.
If you have been impacted by the economic fall-out of COVID-19, you’ll need to let the lender know whether or not your income has been affected and if it will return to normal in the future, as well as if you’ve applied for the wage subsidy and whether your employment will continue once that runs out.
3. Do a credit check
Many lenders may be reluctant to lend to those with poor credit scores. Or those with poor credit scores may be penalized with higher interest rates or less flexible terms. Before you apply for a mortgage, know what your credit score is and how it could impact your mortgage application, by doing a credit check.
A credit check is free and can be done online through any one of the three credit organisations in New Zealand. You’ll find more information on credit checks on the New Zealand Government website.
4. Adjust your expectations
Many first home buyers dream of buying their first home with the vision of it being their forever home. The reality is, most will need to adjust their expectations and settle for something smaller, perhaps in a less desirable area.
In most cases, it makes sense to start off small with a property you can afford and that you can build equity into by renovating or fixing up, and then move up the property ladder with something bigger and better.
5. It doesn’t always pay to go direct to the bank
Applying for a mortgage directly with your everyday bank limits your choice of lender options. And if your application is denied, you’ll need to re-apply somewhere else which can negatively impact your credit score (take a look at this article about bad credit scores for more on this).
Working with a Mortgage Express adviser gives you more options and choices when it comes to home loan solutions, as we work with a panel of both bank and non-bank lenders. In some cases, we’ve been successful at securing a mortgage for home buyers who previously have been turned down.
What’s more, because we work closely with our panel of lenders, we have a clear understanding of lending appetites and can provide unbiased advice which could lead to a more successful mortgage application.
To find out how a Mortgage Express adviser could assist you in securing a mortgage, get in touch today by completing this online form.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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