Getting onto the property ladder, or moving up it, is challenging at the best of times. Buying a house and taking on a home loan is a massive decision, but an exciting one as well. The last thing you want to worry about is finding the property you love and potentially losing it because your finance isn’t ready.
That’s where a home loan pre-approval comes in. With lenders changing how they assess borrowers, it matters more right now than ever.
What is a pre-approval?
Pre-approval is a lender telling you that they’re prepared to loan you money, providing you meet a few conditions, usually around the value of the house you want to purchase. Getting a pre-approval makes it easier to house-hunt, as you know just how much money you’ll be able to borrow.
Essentially, pre-approval means you can have peace of mind knowing that you are able to secure the loan you need when you find the property you want.
Simple tips to get your home loan pre-approved
Before you start house hunting and planning a housewarming, make sure all your affairs are in order. By taking care of this, you will save yourself a lot of stress down the road and have a clearer picture of what you can afford.
YOUR DEPOSIT MATTERS
The size of the deposit you have saved will be a major factor in your ability to get pre-approval. The bigger the deposit, the more favourably the lender will view your application, particularly if your deposit is 20% or more. Lower-deposit options are available, but lenders tend to look at these more closely.
As part of the application, the lender will ask for proof of your deposit. This will be a bank statement, a KiwiSaver first home withdrawal balance estimate, or proof of gifted funds.
DO YOU HAVE A CLEAN CREIDT HISTORY?
What’s your credit score? During the application process, lenders use your credit history as a strong indicator of your ability to manage a home loan.
Lenders can decline your application if they consider your credit history unsatisfactory. There are four main areas they will look at: outstanding defaults, paid defaults, the number of credit enquiries, and the number of companies approached for credit.
To save the heartache of a declined application, we strongly advise you know your credit score before applying and have at least a clean six months behind you.
HAVING A CLEAN ACCOUNT HISTORY
As part of your application, you will need to provide a detailed history of your accounts. Lenders look at every aspect of how well you manage them, including current or previous debt, savings, dishonours or unauthorised overdrafts.
A clean history will drastically improve your application, as it shows the lender you can manage your finances and repayments.
MAKE SURE YOUR DEBT IS UNDER CONTROL
Lenders will want detailed information about any outstanding debts, including how long you’ve had them and the amount left to pay. This includes credit cards, car loans and buy now, pay later.
The less debt you have, the higher the likelihood of getting your pre-approval. It’s critical that you get any debt under control before you apply. If you’re struggling to get on top of it, talk to your Mortgage Supply Co adviser about how to improve your application.
DO YOU OPERATE WITH A SURPLUS?
Lenders will analyse the relationship between your income and expenses. They will ask for proof of your current household income and expenses, so they can gauge your position once everything is paid. From this, they decide whether you can comfortably manage new mortgage repayments.
This is where test rates come in. Lenders check you could still manage your repayments if rates were higher, so the surplus they’re looking for can shift when they change their criteria. You can read more about test rates and how they can affect your borrowing capacity HERE
Being in the black more than in the red will dramatically increase your attractiveness to lenders.
WHAT IS YOUR EMPLOYMENT HISTORY LIKE?
A big part of getting a pre-approval is showing a stable, long-term employment history. Lenders look at how long you’ve been in your current job and your previous employment, to judge whether you’re a stable borrower.
Every lender needs you to have a consistent source of income to maintain your repayments. You’ll need your recent payslips, or if you’re self-employed, financial accounts for at least one full financial year. If you have alternative income sources , your experienced mortgage adviser will guide you on what specific documents are needed for your application.
Getting a mortgage when you’re self-employed can be a challenge, and your Mortgage Supply Co adviser can help you navigate the process.
ARE YOU THE SAVING TYPE?
Have you got a nice little nest egg tucked away somewhere? If you do, this will definitely make you more attractive to lenders. Most lenders will look at your ability to save.
By showing a regular and consistent savings history, you’re showing lenders you can manage your finances well.
What do you need for pre-approval?
Your adviser will do their best to limit the paperwork, but you’ll need a few things on hand to get the ball rolling:
- Application form: completed with your adviser
- ID: your passport or driver’s licence
- Proof of income: three months of payslips or your employment contract, or your financial accounts if you’re self-employed
- Bank statements: the most recent three months of transactions on the account your income is paid into
- Confirmation of deposit: savings account statements, confirmation of your KiwiSaver withdrawal, or a gifting letter
- Address verification: a bank statement or utilities bill with your name and address on it
From there, you’ll fill in a form disclosing your assets, debts, income and expenses. The lender will also run a credit check, so it’s a good idea to know what your credit report says.
You house hunt, we handle the rest
Going through a single lender means they’ll only offer you their solution. Your Mortgage Supply Co adviser can shop around and make sure you secure the right loan for your needs.
It’s their job to keep up to date with ever-changing lender and government policies. So you know they’re across all the ins and outs of this sometimes tricky, and almost always stressful, process.
Let your adviser do the preparation and paperwork while you attend those open homes. If you have any questions about pre-approval, or you’d like to check if your existing pre-approval still stacks up, get in touch with your Mortgage Supply Co adviser.
Your questions answered
How long does a pre-approval last?
Most pre-approvals are valid for a few months, depending on the lender. If yours is getting close to expiry, your adviser can help you renew it.
Can my pre-approval change?
Yes. If a lender changes its criteria, or your circumstances change, the amount you’re approved for could change too. That’s why it pays to check in before you make an offer.
Does a pre-approval guarantee I’ll get the loan?
Not quite. A pre-approval is conditional, usually on the property itself meeting the lender’s requirements. Your adviser will talk you through the conditions on yours.
At The Mortgage Supply Co, we’re here to guide you every step of the way, whether you buying, selling, or refinancing. Reach out to our team today to discuss your unique situation and how we can support you in navigating the ever-changing property market!
