18 Oct Mortgage Pre-Approval: All You Need To Know
In a competitive property market, such as here in New Zealand, first home buyers need to be prepared to make an offer on a property without delay. That means having mortgage finance pre-approved ahead of time. Pre-approval gives you a clear idea of how much you can borrow and how much you have to spend. It also gives the seller assurance that you have your finances in order, and often that can seal the deal and give you an edge over other would-be buyers. In this article, you’ll find answers to some of the questions many first home buyers have about mortgage pre-approval.
What is mortgage pre-approval?
Home loan pre-approval is a conditional offer of finance from a lender confirming that, subject to certain conditions being met, you may be able to borrow up to a certain amount, provided the property you’re buying meets specific home lending criteria. Conditions that need to be satisfied to finalise the home loan usually include having a registered valuation done and getting house insurance. Pre-approvals are generally valid for up to 90 days from the date of issue, but may be offered for a shorter timeframe or linked to a specific property.
Why get mortgage pre-approval?
For first home buyers, pre-approved finance provides significant advantages.
- It helps you know your budget and what you can afford to buy, so you don’t waste time viewing properties you can’t afford.
- It lets you move quickly with an offer of purchase on a property you want to buy.
- It means you can bid at auction, as properties sold at auction are sold unconditionally.
- It shows you’re a committed buyer, so sellers and agents take you seriously.
Remember, even with mortgage pre-approval, most lenders will still require information about the property before confirming the home loan, so the sale and purchase agreement will still need to be conditional on finance. Your lender may also request copies of the sale and purchase agreement, a property valuation from an accredited property inspector, and a copy of the LIM report to confirm the home loan.
How do I apply for home loan pre-approval?
Working with a Mortgage Adviser – like those at Max Mortgages – will put you in the best position when it comes to applying for mortgage pre-approval. Your Mortgage Adviser can help you understand things like serviceability – how much you may be able to borrow; loan to value ratio (LVR) and the size of your deposit; and Lenders’ Mortgage Insurance and other expenses that need to be factored in to your budget.
When applying for mortgage pre-approval, lenders will want to see proof of:
- Your income – usually you’ll need to provide a minimum of three months of your most recent payslips or, if you’re self-employed, your most recent financial statements from your accountant.
- Your expenses – bank statements that show all expenses and debts including credit cards, overdraft, and hire purchase payments, as these could impact your ability to repay your loan.
- Your deposit – proof of any savings, monetary gifts from family, or your KiwiSaver account or Government first home grants – all of the money that will go into your deposit lump sum.
- Your budget – how much you’d like to spend on your home.
To help you prepare your mortgage pre-approval application:
- Draft a budget that can be submitted to your lender with your application.
- Show a history of savings and that you can afford the difference between your current rent and your proposed mortgage repayments.
- Have your financial statements, payslips and KiwiSaver details on hand, ready to submit to your lender.
- Manage your money well by ensuring you only spend what you earn and avoid stacking up expensive debt like credit cards.
- Pay down any high interest debt or consolidate your debt to a lower, more manageable interest rate.
What happens next?
Before confirming your home loan, even with conditional pre-approval, most lenders will still require information about the property you’re buying. That’s because some properties may not meet lender’s criteria in terms of acceptable security. The experienced team of Mortgage Advisers at Max Mortgages can work with you to quickly and confidently check that the property you’re buying is acceptable to the lender. And because the lender is likely to require proof that you have arranged house insurance, one of the Insurance Advisers at Max Insurances can help you with that too.
At Max Mortgages we understand that getting home loan pre-approval can feel a little scary, especially for first home buyers. That’s why we’re here to help you at every step of the way – from saving a first home deposit, to getting pre-approved for a mortgage, right through to arranging insurance and moving into your new home. Contact us today to talk about a pre-approved home loan and let us help you get the right home loan NZ wide to suit your needs!Contact a Mortgage Adviser
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