Applying for a Home Loan
When applying for a home loan it can be quite daunting, particularly if you have been declined by a lending institution before. It can sometimes be hard to know what lenders are looking for.
Since the recession lenders have definitely become more cautious when it comes to giving out their money. Gone are the days of 100% home loans. Most applications are assessed on a case by case basis, and each lending institution will have its own lending criteria based on how much risk they are prepared to take. However, in general they will all look at the following;
- Good credit history – a good clean credit history/rating is important to lenders. Those with poor credit histories will find it harder to get home loans. If you’re unsure about what your credit history is you can check it at www.mycreditfile.co.nz
- Deposit amount – in general 5% deposit is the very minimum but lenders look more favourably on those that have a higher deposit, particularly now when they are limited as to how many low deposit loans they can issue. Banks must now ensure that a the majority of their lending is under 80% LVR (or has a 20% deposit). Low deposit amounts can attract additional fees. Lenders may also have different deposit requirements for different types of properties (e.g. investment properties).
- Good savings / banking history – lenders want to see that you can save on a regular basis and live within your means. If your banking history has honour/dishonour fees each month or if you exceed your overdraft or credit card limit these could count against you.
- Ability to repay the loan – lenders want to see evidence that you have regular income coming in. When assessing your ability to repay the loan they’ll also take into account your need to live and pay other expenses.
- Consumer debt – banks look more favourably on those who have little or no consumer debt so when applying for a loan its best to have as little consumer debt as possible (HPs, personal loans, etc).
- The Collateral – The collateral (i.e. the house/dwelling/land) must be acceptable to the lender. For example, houses that have significant ‘deferred maintenance’ (i.e. need a lot of work/repairs done to them) may cause a lender to look at how you will afford to make the necessary repairs.
More information about buying your first home can be found on the Sorted website