Get The Loan: Six Tips To Make Sure Your Mortgage Is Approved

For many Kiwis, owning their own home is one of their most treasured dreams. They envisage Sundays spent relaxing in their very own backyard, evenings hosting friends for dinner at their very own dinner table, and weekends making memories with family and friends in their own little (or not-so-little) haven.

When it comes down to it, your home is likely to be the biggest investment you’ll ever make, and actually 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 take a look at what they are.


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.


Save for a deposit

In New Zealand, you’ll 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 there are low deposit options available but the earlier you start saving, the easier it is to get approved.


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, too: 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.


Get pre-approved

Getting pre-approval for a mortgage means a lender has looked at your finances and has agreed to lend you a certain amount of money to buy a home. It has several major advantages.

Firstly, it shows buyers you are serious about buying, and that you have the finance to follow through with the sale. This makes you a better candidate to sell to than someone without pre-approved finance.

Secondly, having pre-approval means having confidence in your ability to get your mortgage approved, even before you set foot in any open homes. It means you know what’s in your budget and what isn’t, and will help you narrow your home search down to the right price range to suit you.

To get pre-approved, you’ll need to provide the lender with information about your income, expenses, and debts. They’ll assess your finances from the info you’ve supplied and give you a pre-approval letter to show real estate agents and sellers that you’re a serious buyer.


Choose the right lender

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.

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).


Talk to a broker

Mortgage brokers make it their business to know all there is to know about mortgages and how to negotiate the very best deal for their clients; so why wouldn’t you engage one?

Choosing the right mortgage broker is important in and of itself. You want to choose someone who works with several lenders, not just one, as this will make them more likely to negotiate a good deal on your behalf. 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.


Be honest

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 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, subscribe to our blog for future articles or feel free to book a consult with Craig.