Home loan approval in New Zealand
You can buy the house, apartment or farm that you want with the help of a home loan in New Zealand.
You should not view home ownership as an impossible dream only available to the elite. The home loan amount that you will qualify for will depend on your income.
These property loans can be used for refinancing as well. You can obtain a home loan from a bank, credit union or a small independent lender.
How to get the best home loan deal
First time home buyers typically find it easier to obtain a home loan because they are more likely to be strict about its repayment. Furthermore, there are different ways in which they can get support. The main options include Welcome Home Loan, KiwiSaver deposit withdrawal and KiwiSaver deposit subsidy. Individual lenders often have special deals as well. The most important thing to keep in mind, however, is that each and every mortgage is different and you have to be vigilant about the details.
Loans for first-time home buyers
You should certainly consider taking advantage of the home loans and extra benefits which are specially designed for first-home buyers. Take a closer look at the main ones:
Welcome Home Loan with a 10% deposit
This deposit is two times lower than the 20% deposit that conventional mortgages typically require. Home price caps apply, however.
KiwiSaver deposit withdrawal
The maximum possible amount which you can withdraw to contribute towards the home loan deposit consists of your personal contributions and those made by your employer plus all returns. Just keep in mind that the limitations set by your individual savings programme will apply.
KiwiSaver deposit subsidy
If you have been saving for more than 3 years, you can obtain a deposit subsidy of NZ$ 1,000 for every year during which you have saved up to the 5th one.
You should definitely consider special loans offered by lenders as well since they typically have very attractive benefits.
100% home loans
These loans are designed to help home buyers finance the purchase of a property. They are intended for those buyers who do not have sufficient savings for paying the total cost of the property. They are available to all people in New Zealand who are of legal age. At the same time, the different home loans offered by lenders have specific qualifying requirements. You need to earn sufficient income to make regular payments and have a good credit history.
Limits to home loans
Conventional home loans in New Zealand typically offer finance for no more than 80% of the price of the property. The Welcome Home Loans offer finance for 90% of the price. Additionally, the loan amount is determined by the borrower's ability to pay which is based on their income and spending.
The property which is purchased has to meet specific requirements as well. This is necessary for confirming its true value. The purpose of all this is to protect the investments of both the home buyer and the lender.
Obstacles to be aware of
Since you can obtain finance for no more than 80% to 90% of the property price and the precise amount is determined by your income as well, you may not be able to get as much money as you need to buy your dream home. Given this, you will benefit greatly from being flexible when it comes to selecting a property. You should produce an accurate estimate of how much you can afford to pay for a home in advance along with outlining your requirements on amenities and location.
The purchase of a home is an important step associated with a long-term commitment. If you believe that you are not ready for this or you want to have the flexibility of moving to another town or country, you may want to stick to renting a place for now and postpone buying a house.
Each and every property purchase deal is associated with closing costs which can account for around 3% to 5% of the purchase price in most cases. You have to be prepared for covering these costs.
It is possible for the terms and conditions of your home loan to change in the future. The possible changes are clearly outlined in the loan agreement and so are the conditions under which they will take place. You must read the agreement extremely carefully and make adequate provisions for accommodating these changes if they are made. You can use the help of a financial advisor for this.
Before you take out a home loan, you have to plan for its repayment. You also need to consider the possible risks and work out ways for reducing them.
Answers to the most common home loan questions
As a homeowner, you will enjoy the high satisfaction of having your own place and great pride as well. Homeownership has important financial benefits as well. A property is a major asset whose value will most certainly increase over time. For the time being, you need to focus on how you will finance the purchase of a home. The use of a home loan is the main option you have. Find the answers to your questions on obtaining a mortgage loan below.
Home loan interest rates in New Zealand
The interest rates vary from one lender to another and from one loan to another as well. They are determined by the Official Cash Rate set by the Reserve Bank and by the free market as well. As a home buyer, you will be able to select from loans with a floating or fixed interest rate. The final interest rate on the loan is determined by the level of risk which the lender assumes by providing finance to the particular borrower. If you have an excellent credit history, you can expect to pay a lower interest rate and vice versa.
How important is your current debt?
It plays a major role in the decision-making process carried out by the lender. In order to determine whether and how much money to grant to you, the lender will take into account your gross income and your disposable income as well. When you have a larger amount of debt, you have a smaller disposable income and this will have a negative impact on your ability to pay back the home loan. In this situation, even if you get approved, you will most certainly be offered a smaller loan amount. For this reason, you should focus on repaying as much of your existing debt as possible before applying for a home loan. You need to avoid getting new personal loans and lines of credit as well.
Can home renovations be financed by an existing mortgage?
Once you have financed the purchase of a house with a mortgage and you keep repaying it, you will most certainly be able to finance home renovations by borrowing against the equity which you own in the property. In this case, you can choose to top up the balance on your home loan. You can also take out a separate home equity loan if the interest rate in lower than the one on your mortgage. It is also possible to use a personal loan for financing the home renovation. This type of loan is unsecured and typically comes with a higher interest rate. You can also use your savings to pay for renovating your home. In any case, the renovation will certainly increase the value of the property and you will benefit from this financially.
Can you get guaranteed approval on a home loan?
No, this is not possible. Lenders have to ensure that you have sufficient income to repay the home loan and that you are a reliable borrower so they will perform an income analysis and a credit check. Responsible lending benefits the borrower as well as the lender.
What is the typical home loan repayment structure?
Traditional home loans have a clear and straightforward repayment structure. You will have to make a regular payment. It can be monthly, fortnightly or weekly. This payment consists of two chunks - the principal chunk and the interest chunk. Initially, the interest chunk will be greater but it will become smaller over time so that you can repay more of the principal. As more of the principal is paid back, you will build larger equity in the property. Currently, the banks in New Zealand offer revolving credit loans and interest-only loans as well.
Can you have more than one home loan?
Yes, this is possible. You can have a second mortgage on your house or take out another home loan to purchase another property.
What if you have difficulty repaying the home loan?
If you fail to make a payment, the lender will contact you directly. Your best strategy, in this case, is to share your problem and request assistance. Lenders are more than willing to negotiate with borrowers in order to ensure the repayment of a loan. There are various options which the lender may offer. These include a repayment holiday, an extension of the term of the loan, which will make the regular payments smaller, and an even lower interest rate.
Can first-time home buyers get help?
First time home buyers in New Zealand can take advantage of the Welcome Home Loans with 10% deposit and of the KiwiSaver deposit withdrawal and subsidy for producing the deposit. Additionally, there are special deals offered by individual lenders. It pays off to research all available options.
What is home loan refinancing?
The idea of mortgage refinancing is simple. You take out a new home loan in order to pay of the outstanding balance on the existing one. Home owners typically do this in order to secure a lower interest rate and/or to reduce the size of the loan payments. In order to qualify for refinance, you must have sufficient equity in your property and good credit history as well. When you go for mortgage refinancing, you have to check not only the interest rate and the size of the new payments, but the closing costs as well. They can be added to the principal of the new loan or eliminated at the cost of a higher interest rate. Either way, the cost of borrowing will be higher.
Can you split a loan?
This option is available from various lenders in New Zealand. One portion of the loan can have a fixed interest rate while the other one will have a floating rate. In this way, you will have certainty while being able to benefit from decreases in the floating rate. Additionally, you will be able to make extra payments towards the floating rate part without penalty. This option is highly beneficial, but you have to be prepared for assuming the risk as well.
How can you take out a home loan with bad credit?
The best strategy in this situation is to repair your credit as much as possible. You can also come up with a larger deposit. You should definitely focus your attention on lenders that specialise in bad credit loans, but not limit your research to them. Even if you secure approval, you may have to pay a higher interest rate. You have to be absolutely certain that you will be able to afford the repayment of the loan.
What can you do to boost your credit before applying for a home loan?
You need to close all loan accounts which you do not use and use actively the ones which are left. You should not close a loan or credit card account that you have just paid off to ensure that it will be entered in your credit record. You must pay all of your bills timely. You can use one or two credit cards, but you should not spend more than a third of their limit. You should avoid taking out new personal loans and credit lines in the months before applying for a home loan.
Can you take out a home loan without a credit check?
No, all lenders perform such checks to assess risk. If you have defaulted on your credit record, you should try to explain this to the lender. Alternatively, you can work with a lender specialising in loans for bad credit, but in this case, the interest rate will most certainly be higher.
Can you get a home loan after bankruptcy?
Typically, bankruptcy in New Zealand lasts for 3 years unless it is made shorter by a court of law. After this period expires, you will be able to apply for all types of loans including home loans. Still, your bankruptcy will remain on your credit record for 7 years. This will make your chances of securing a mortgage much lower. Still, you can use the help of a financial advisor and work with a specialised lender who may be able to grant a loan to you.
Overall, you should be fully ready for taking out a home loan. You need to have a secure and stable income from employment and good credit history. You have to ensure that you will be able to afford the loan.