How to get "bank ready" - the 6 things the bank will want to see!
In the first of a series of articles, I’d like to explore in more depth, answers to some of the questions I get asked most frequently.
How do I get bank ready
If you’re contemplating buying a new house, or just looking at securing a better deal on your mortgage, then it pays to be bank ready. But what does this actually mean, and how can you make sure that you present yourself in the best possible light to potential lenders? My role is find you the best mortgage deal for your situation. I act on your behalf and negotiate with several banks to make sure you are getting the finance you want, on the right terms for you. Banks operate on a risk basis, making a commitment to give you hundreds and thousands of dollars to help you to buy your property. The bank needs to know that you are a sound investment, which is why there is often a lot of paperwork involved with securing your loan. While I can talk you through the administration and help you to complete the forms, knowing the following information will help to speed the process along once you get a loan approved in principle:
Ideally, banks like to know that you have been employed with the same company for six months, however, if you’re borrowing over 80% of the purchase price, then this needs to be 12 months. This demonstrates your commitment and reliability, two integral measures to securing a loan.
Proof of income:
This is particularly important for self-employed borrowers. Be aware of your expense write-offs, as the more you claim as an expense, the less you have as a taxable income, and that’s what the bank looks at. If you are a salary or wage earner, all you’ll need is your last three payslips.
This needs to be transparent. If you have debt now or have done in the past, you will need to provide information on your credit history and demonstrate how you have remedied this or what you will do to pay the outstanding amount.
Short term debt:
It’s worth knowing that most banks are fairly relaxed about lending you money if you have a student loan or a small credit card debt. If you have personal loans and hire purchases, these can have a detrimental effect on both your monthly cash surplus, while also reflecting negatively on your ability to manage money and live within your means. Banks set aside 3% of your credit card limits for debt servicing, so if you have a large limit, and it’s not been used, then I strongly advise you to reduce the limit.
Lenders like to see at least 5% of your deposit coming from genuine savings, e.g. KiwiSaver or money you have set aside over a number of years. The balance can be made of HomeStart grants and/or help from friends and family.
If your proposed home loan payments are going to be, say $700 per week, then banks respond positively if you are currently putting this amount aside in either savings or a mix of savings and rent being paid. This gives the bank comfort that you can self-manage your income and expenditure.
Bear in mind that banks favour lending money to people who have not missed payments on credit cards or personal loan debts. Your bank statements will be reviewed upon application to confirm account conduct, so avoid unnecessary overdrafts and be a responsible banking customer.
Banks like to see your asset position matching your age, income and circumstance. For example, a 50 year old first home buyer earning $100,000 per annum with no assets is likely to be asked to explain their money management and spending habits!
If you’ve just read the above checklist and you’re worried that you won’t be able to meet the criteria, then relax. It’s not realistic that all of the above points are achievable, and part of my job is to help you mitigate and explain to the bank any weaknesses in the submission. In most cases, if we can successfully prove your commitment and ability to repay the loan, the banks will approve your mortgage.
If you’d like to find out more about the lending criteria of New Zealand banks, or if you have a question relating to any part of the mortgage process, give me a call: 027 4119255.
If you want to have an informal chat with the best mortgage broker in Auckland, then give me a call on 027 411 9255 or email email@example.com