How much deposit is required?
• What will be the repayments structure?
• Which is the best lender?
• Why do I need a mortgage advisor?
• What else do I need to know?
Consulting a mortgage broker would be a good idea as they can provide answers and guidance or the above. As part of your early preparation to a property purchase, prior preparation is important, here are some tips what kind of preparation you will require.
- Understand your budget.
Before you start house hunting, talk to your mortgage broker to get a sense of what you may be able to afford. This information is vital as it helps you figure out the price range to target and what neighbourhoods you can buy in.
- Check your credit report regularly
Your credit report is a compilation of information about the way you manage debt. This Information includes,
How much debt you’ve accumulated, how your bills are paid, where you live, your employment details, whether you’ve filed bankruptcy, and home foreclosure information or vehicle repossession.
In New Zealand, these are the registered credit reporting agencies, Centrix,
Dun & Bradstreet ,Equifax and Credit simple
Your credit report includes your payment history for: credit cards, mortgages, car finance and hire purchases. It also includes your payment history for other bills like electricity, gas and phone accounts.
Hints
Make sure that the loans and accounts listed under your name are yours and that the balances are accurate, it might take months to have an error removed from your credit report, so, the earlier you check, the more time you have to fix the issue, checking your credit information is also helpful to as it lets you know who has had access to your credit information
- Maximize your credit score.
Boosting your credit score increases the chances of your loan getting approved and even getting a lower interest rate on your loan, it might be difficult to get your loan approved for a mortgage if your credit score is unhealthy.
A credit score above 700 can qualify for lower interest rates; great offers are available to people with credit scores of 750 and up.
- Ways to improve your credit score,
Establish these habits at least 6-9 months leading up to the purchase.
- Pay your bills on time; your payment history is the number 1 factor that goes into your credit score.
- Bring down the balances on credit cards to below 30 percent of the available credit.
- Avoid opening or closing credit cards until after you have purchased your home. Applying for a new card requires a credit check, which can affect your credit score.
- Closing a card can also lower your credit score by reducing your credit history or making it seem like you are using a larger share of your total credit.
- Work out what your down payment should be.
Main bank lenders require a minimum deposit for a home loan of at least 20% of the amount you plan to borrow. For example, a house worth $ 350,000 you will be required to save a deposit of at least $70,000.
There are exceptions however, for example,
The
Welcome Home Loan Scheme for first home buyers, which requires a deposit of 10%.
Starting From 1 January 2018, the reserve bank changed the LVR restrictions to
- No more than 15 percent (currently 10 percent) of each bank’s new mortgage lending to owner occupiers can be at LVRs of more than 80 percent
- No more than 5 percent of each bank’s new mortgage lending to residential property investors can be at LVRs of more than 65 percent (currently 60 percent)
Lenders will have different criteria for new and old clients applying for loans greater that 80% LVR; It’s a prudent to seek advice from your mortgage broker on what lenders are doing.
Please note that, the bigger your deposit, the less you will pay in interest over the long term. This is due to the risk a lender takes on these loans. Loans that are for more than 80% of a property’s value tend to have higher charges and these charges can vary a lot; some lenders will charge lenders mortgage insurance(LMI) while others will increase the interest rate to cover the risk.
- Build a housing emergency fund.
Most home buyers will focus on saving for the down payment. It’s equally important to set aside a cash fund to pay for unexpected home repairs and other emergencies.
Once you become a homeowner, you will have to meet the costs of any damages, for example water leaks, damaged sink etc.
- Avoid major purchases.
When you apply for a loan, lenders reviews your bank statements to ensure that you have enough surplus income. Tighten your spending in the months before you apply for mortgage. Purchases worth thousands of dollars can be harmful if they are made with credit or another loan facility; they add to your debt. This affects your debt-to-income ratio, which makes it harder to qualify for the loan.
- Shop around for the best deal; engage the services of a mortgage broker.
A lot of
home buyers go with the first offer they receive from a bank, there are disadvantages to doing this.
By not shopping around, they may end up with a higher interest rate when they could qualify for a better deal elsewhere a Mortgage Broker can assist with this. Due to their access to many lenders they are in a better position to source better deals and bargain with lenders on your behalf.
- Before you start visiting homes, get a preapproval letter.
Once you’ve chosen a lender, you should request a preapproval letter; this outlines more details about how much you can borrow. Unlike a prequalification letter, a preapproval letter tells the seller and your real estate agent that lenders have vetted your finances and confirmed that you qualify for a loan — giving you a possible edge over buyers who can’t prove that they will get financing.
- Buy a property you can afford now, not later
You might be certain that you’ll be earning more in a year or two, you might also find that other circumstances might increase the other expenses in your life. Children, schools, new cars and travel plans are substantial costs. It’s important to ensure there will be room in your budget for you to live the life you want.
In conclusion, early preparation is key and will make the process of purchasing your home much smoother. It also a good idea to engage the services of your mortgage adviser early-on during this process.
