One of the most important things to know when you're seriously considering to buy a home is the loan approval process. Here is a guide to prepare you for this journey.
Talk to an Adviser
While it is true that anyone can apply for a mortgage through most lenders directly, more often than not it is wise to seek out an Adviser for help.
Advisers work with Lenders on a daily basis and know their policies inside and out. Their role is to understand your property goals and assist you, start to finish, in obtaining finance to purchase a property.
The four most notable areas of assistance are:
- Ensuring that you are actually ready to proceed with an application
- Placing lending appropriately to match/work with your financial goals and aspirations (i.e. you may wish to set up a business or build an investment portfolio)
- Providing the right information
- Providing options regarding account structure (including ways to help reduce interest costs and/or loan term).
Documents Needed for an Application
The list of documents needed for a home loan application is to prove your Character, Capacity, Capital, and Collateral position. The question is - Are you an acceptable risk to the bank?
This will provide most of your Personal Details, and allow a Bank/Lender to complete a Credit Check. But, it is also often used to cross reference items against the supporting documents.
Credit Card Statements
The bank will need to see at least a 1-month statement to confirm the limits and amounts owing but they may ask to see 3 months worth.
Proof of Income
This will depend on your employment status:
- Salary or Wage earners would need to provide Pay-Slips or a Letter from their employer
- People who receive regular Overtime, Bonuses or are Commission based should provide Tax
- Summaries (you can login to IRD and retrieve these online)
- Self-Employed persons will need to provide financial accounts complete by an Accountant (and/or Tax Summaries)
- Other forms of income such as Benefits or Flat Mates etc.
Bank Statements and Account Balances
These are used to confirm your spending habits, verifying your commitments, your deposit fund, and/or KiwiSaver position. Banks/Lenders will be looking to sight transactional, credit card, business, savings and/or KiwiSaver statements or balances.
You will need to provide 3 months of full transaction statements for the account your pay is deposited to and your savings account.
Note: This could increase to 6 months
If known, it should also be provided for the property being purchased and should improve turnaround timeframes. This would include:
- Real Estate Listing Information
- Blank (i.e. auction) or Conditional Sale and Purchase Agreement
Seeking a Pre-Approval
Obtaining Pre-Approved finance should provide you with added confidence when looking and negotiation on a property. In either instance, your Purchase Capacity should not be revealed to your Realtor.
Take note a pre-approval is based on your ability to borrow and nothing else. The property being bought will still need to be satisfactory to the Bank/Lender in all respects.
This means that the Bank/Lender is happy to proceed with lending you money, often at this point you will need to visit a branch to formally identify yourself and set up an account, it is also at this stage that your will need to confirm how you would like your Mortgage structured.
In some instances, there may be some conditions accompanying the approval these may need to be met before your mortgage could be documented (i.e. reconfirming you deposit funds) or are required to be completed shortly after settlement (i.e. maintenance on the house).
This is the most formal part of the application process and will be processed once you have completed the relevant steps noted above under Loan Approval. These documents will be forwarded to your solicitor, who should review them with you to ensure that you understand what you are signing.