A home loan pre-approval gives you peace of mind when you first start house-hunting, by letting you know exactly how much money the bank is prepared to lend you. Although your pre-approval is conditional, it puts you in a position to move quickly when you find your ideal home, and it’s also an essential step if you want to bid at auctions. Here’s what you need to know about the home loan pre-approval process.
What is a pre-approval?
Provided by a lender in writing, a home loan pre-approval confirms that you may be able to borrow up to a certain amount of money provided specified conditions are met. Standard conditions typically included are a Registered Valuation of the property you’re considering purchasing and a copy of the signed sale and purchase agreement once your offer is accepted.
Pre-approval offers are generally valid for a fixed period from the date of issue – typically 90 days – and if your loan to value ratio is over 80 per cent (i.e. you have less than 20 per cent deposit), the pre-approval letter of offer will be subject to the bank meeting its LVR obligations to the Reserve Bank of NZ.
How do I get a pre-approval?
Before you make an appointment with your mortgage adviser or start filling in forms, make sure you meet all your lender’s requirements and have all the supporting documents you’ll need to supply.
The lender will want to see proof of:
• Your income – the bank will want to make sure you have a regular income so that you can afford to repay your loan. You’ll need to show three months of your most recent payslips, or if you’re self-employed, your most up to date financial statements prepared by your accountant.
• Your expenses – the bank will need to know how much you pay out in expenses each month that could affect your ability to make repayments. Expenses will include household costs, child support payments, financial commitments and debt repayments, as well as any other outgoings.
• Your debt – the bank will need to see how much you owe on credit cards, hire purchases, store cards and overdraft, what your repayments are and when you expect to finish paying off your debt.
• Your deposit – this could be your bank statement showing your personal savings, your KiwiSaver first home withdrawal balance estimate, or proof of any gifted funds.
You’ll also need to show a form of ID and proof of your current address, as well as bank statements for the last six months showing your name, your bank account details and a running balance of transactions along with your income payments.
It’s important you provide as much information as possible when submitting your application to ensure you obtain a strong pre-approval. Your Mortgage Express adviser can help you put together a sound application for pre-approval to ensure your application is successful.
What happens next?
Once you’ve provided all of the documentation the bank requires to your Mortgage Express adviser, your adviser will work with our panel of lenders to match you up with the right finance option. The lender will assess your pre-approval application and either approve or decline it.
Here are some tips you can follow to improve your chances of a successful pre-approval application:
• Save more – the bigger your deposit, the better your chances.
• Check your credit history and clear any bad debt.
• Reduce your short term debt.
• Pay your bills on time every time.
• Ensure you have a stable employment history or end of year financial records if you’re self-employed.
If you’re considering buying a home and need to apply for pre-approval, talk to our team of mortgage advisers first. We’re experienced at securing pre-approval for our clients and can match you up with the right lender to fit your financial needs.
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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