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Calculating
how much money you can borrow, and who will lend it to you
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When looking for a house, it is so easy to overestimate how much debt
you are able to service. There are number of institutions and
professionals that will assist you with borrowing to purchase your
home:
- Major Trading Banks
- Mortgage Brokers
- Co-operative Credit Unions
- Accountants and Lawyers
- Family Trusts
However, the lending criteria offered by Lending Institutions
change from time to time according to the status of financial markets and because of
changes in Government policy.
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Borrowing from Trading Banks
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We strongly suggest that before you begin your house hunt, you should
visit the bank where you normally trade. Talk to the Loans Officer
about your plans and determine the type and the size of the loan that
might be possible. Even if you eventually obtain your loan from a
different source, your local Bank (ANZ, ASB BANK, BNZ, HSBC, National
Bank, Westpac, Bank Direct, Kiwibank, Taranki Savings Bank) is the
best place to start.
Most banks have a policy of not lending more than a percentage of
your gross revenue. However, the Bank will lend you more if you and
your partner have two incomes.
The Loans Officer is going to want to know the following
- How much deposit do you have?
- How much is your total household income? If there are two
incomes coming into your household the Bank will lend you more
money than if you have a single income.
- How much do you want to borrow?
Get the following Information ready for the Loans Officer
- Drivers licence for identification
- Bank statements for the last 3 months
- Pay slips dating back at least 3 months
- Details of how much rent you pay and how often
- Details about any other debt repayments that you, or anyone else
associated with the loan, are servicing such as bank loans, credit
cards, store cards, student debt, hire purchase, car finance,
overdrafts, child maintenance payments.
How much deposit will you need:
The larger the deposit that you have, the less you will need to
borrow. Your loan repayments will also be smaller.
Lending institutions often advertise that they will lend you
up to 95% of the house value. In some cases they will lend 95%.
However this usually applies to smaller loans rather than large
loans. In addition, the lending institution will usually charge
you an extra insurance cost if your deposit is less than 20% of
the total amount. This insurance is designed to reduce the risk
to the lender in the event that you cannot make repayments on
your mortgage. Talk to your bank manager or mortgage broker
about how much deposit you will require as a percentage of the
house purchase price.
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Tips for improving your credit score
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Credit cards:
Try to have only one credit card. Lenders will assess the number of
credit cards that you have and the amount of credit available on each.
Having less credit cards and lower credit limits will work in your
favour. Make sure you have cleared any credit card debt and get into the
habit of paying your credit cards on time.
Savings history:
Make regular savings, even if it is small amounts, into a savings
account at your bank. This will show your Bank, or any other lender,
that you can manage your money and keep a budget.
Hire purchase:
If possible, pay off any hire purchase agreements before arranging
mortgage finance. The bank will ask you if you have any outstanding
loans/debts etc. The more debts you have the less money they will lend
you.
Borrowing the deposit:
If you are planning on borrowing some or all of the deposit money
from your family, you should ensure the money is deposited into your
account at least 6 months before arranging finance. Otherwise the
lending institution may discount this money in the loan approval
process because you did not actually save it. Note that the lender
will most likely check your deposit statements for the last few months
to see if you had a recent, large, cash injection.
Ask for incentives:
Today's banking market is very competitive. Ask your Bank for the
most competitive interest rates. Ask your Bank for incentives. For
example they may offer to pay part or all of your legal costs when
buying a house or to pay your first year's house insurance.
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Borrowing through Mortgage Brokers
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After talking to your Bank, we recommend that you talk to a mortgage
broker. A good mortgage broker will be able to offer you advice about
the best deals and a comparison between loan options offered by the
major banks and from other sources such as Insurance Companies and
Finance Houses. Mortgage brokers do not charge the house buyer for finding the best
deal on a mortgage (they receive a sales commission from the Bank or
the Lending Institution.
While you do not pay a fee directly to the mortgage broker, the sales
commission that is paid by the Bank (or
by the Lending Institution) to the broker may ultimately
impact on the deal that is offered to you.
Mortgage Brokers in New Zealand and Australia:
The New Zealand Mortgage Brokers Association (NZMBA) promotes the
highest standards of professional and ethical conduct, including
expert knowledge, integrity, competency and service to clients,
lenders and the public of New Zealand.
Visit their web site http://www.nzmba.co.nz/
for a list of registered mortgage Brokers
In Australia The Mortgage Industry Association of Australia (MIAA)
represents mortgage brokers, mortgage managers, and mortgage lenders
(bank and non-bank) to assist them to develop, foster, and promote the
mortgage industry.
Visit their web site http://www.miaa.com.au/
for a list of members.
Self employed:
If you are self-employed and have traded for less than two years,
you may find it harder to get a mortgage than if you had worked for
salary or wages. If using a broker, self-employed buyers may have to
provide their broker with a raft of financial statements relating to
their business. Self-employed business owners may find it easier to
deal with the bank that handles their business banking.
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Credit Unions
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A Credit Union is a financial co-operative. Members save and borrow
from each other at reasonable rates of interest and with a sensible
approach to fees and other charges.
Credit Unions are not-for-profit and once overheads and other expenses
are paid, income from loans is returned to members in the form of
dividends on savings, reserves, or additional services.
Credit Unions are not registered banks, but they operate under
Membership Rules and provide a comprehensive range of banking and
insurance products. Anyone can join their local Credit Union.
Credit Unions offer range of Home Loan options that suit the needs
and financial circumstances of their members. The interest rates
offered are competitive with other lending organisations. Generally
some form of security is required such as savings, property, motor
vehicle or a guarantor and there may be limits on the total amount
that can be borrowed.
Click here for a directory of New Zealand Credit Unions http://www.nzacu.org.nz/cudirectory.pl.
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Accountants, Lawyers, and Family Trusts
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Many accountants and lawyers provide loan finance services. Many use
"in house" mortgage brokers. Others will negotiate
on your behalf with New Zealand Banks. The funding of such
services is met by commissions paid by Lenders.
Accountants and lawyers are professional advisers who are able to
advise their clients without any financial conflict of interest in the
outcome of their loan applications. If you are not confident about
making a direct approach to your Bank or to a Mortgage Broker,
consider asking your accountant or lawyer to act on your behalf.
If you are planning to borrow money from private sources (family,
friends) or from a Family Trust, you should consult with your lawyer
and have the loan properly documented. Failure to do so may well
result in later court action when litigious family members demand
their inheritance.
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www.house-buying-downunder.com
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