Get The Loan: Six Tips To Make Sure Your Mortgage Is Approved
When it comes down to it, your home is likely to be the biggest investment you’ll ever make, and making it all come together to achieve your dream can be a daunting process.
Getting approved for a mortgage is one of the key pieces of the puzzle, and it can be one of the more overwhelming aspects of the whole exercise.
The good news is that there are steps you can take to ensure that once you find that perfect home, you’ll be in the very best position to get approved for the mortgage that’ll make it all happen.
Let’s look at what some of them are.
1. Check your credit score.
One of the first things a lender will do when you apply for a mortgage is to check your credit score. Your credit score is a numerical representation of your creditworthiness and is based on your history of repayments, your current debt, the length of your credit, recent loan applications and the types of credit you’ve accumulated.
Your credit score ranges from 0 to 1000; the higher your score, the better your chances of being approved for a mortgage.
It’s a good idea to check your credit score before you apply for a mortgage, so you can take steps to improve it if you need to, before being disappointed in the lender’s office.
Checking your score is easy; it’s free and quick to do online with services like Credit Simple and Equifax. All you need is a valid
New Zealand ID and five spare minutes.
2. Save for a deposit.
In New Zealand, you’ll normally need a deposit of at least 20% of the purchase price of the home you’ve got your eye on. This means that if you’re buying a home for $600,000, you’ll need to have a deposit of $120,000.
For most people, saving that amount of money will take a long time, so the earlier you start, the better your chances of getting there. It’s a good idea to set up a separate savings account specifically for your deposit, to make it easier to track your progress and watch your goal get closer and closer.
Now the good news is, there are low deposit options available from 5% (with strict criteria) but the earlier you start saving, the easier it is to get approved.
3. Pay off debt
When you apply for a mortgage, lenders will also look at how much debt you have to your name; specifically, they’ll look at your debt-to-income ratio.
Your debt-to-income ratio refers to the amount of debt you have compared to your income; the more debt you have, the harder it can be to get that coveted mortgage approval. It’s not just about those big-ticket items like that couch you have on HP, the student loan you’re still paying off and the car repayment, either. It’s the smaller things you have on Afterpay, Laybys: those concert tickets, and that watch you bought in 6 instalments.
To a lender, debt on those smaller items means you’re living beyond your means, and it’s a red flag for mortgage approval.
If you have debt, focus on paying as much of it off as possible before you apply for a mortgage. This will not only improve your debt-to-income ratio, but also free up more money for your mortgage repayments. Consider creating a budget to help you pay off your debt faster and make sure you’re not taking on any new debt while you’re saving for your deposit. Start with paying off the smaller debts first.
4. Choose the right lender
This can be one of the most complex parts. Not all lenders are created equal, and it’s important to choose the right lender for your needs. Some lenders may be more flexible with their lending criteria, while others may offer lower interest rates or more favourable terms.
Just because one lender said no, doesn’t mean they all will.
Your mortgage is a debt you’ll likely carry for many years to come, and the wrong choice can cost you a lot of money. Do your research and compare different lenders before you apply for a mortgage. Look at their interest rates, fees, and lending criteria to find the lender that best meets your needs. The quickest and easiest way is to talk to an expert, get advice from a mortgage professional: talk to your broker (see point below).
5. Talk to a Mortgage Broker
Mortgage Brokers make it their business to know all there is to know about mortgages and how to negotiate the very best situation for their clients; so why wouldn’t you engage one?
Choosing the right mortgage broker is important in itself. You want to choose someone who works with several lenders, not just one, as this will give you more options to get the best outcome. Notice their experience; how long have they been in business?
Check out the broker’s online reviews and speak to friends to hear who they used, and what they thought of their services. What do people comment on most? Pay attention not just to what’s being said about how skilled they are, but also what’s being mentioned about how pleasant they are to work with. You’ll be interacting with them quite a lot, so the friendlier those interactions are, the smoother the whole transaction will flow.
6. Be honest
Especially to your Mortgage Broker! Whatever you do, don’t gloss over financial details in the hopes your lender won’t notice. I promise you, they will, and any omissions on your part are likely to result in your mortgage being declined.
Lenders will investigate your finances thoroughly, including your income, expenses, and debts.
Be upfront about any debts or financial issues you have and provide the broker/ lender with all the information they need to make an informed decision.
If owning your own home is your dream, these tips should help you get there. If you’d like more in-depth advice or help with budgeting, check out craigpopefinancial.co.nz and have a no obligation chat to Craig Pope.