How much will the Bank lend you to buy a house?
When you are ready to go shopping for your new home you will want to have pre-approval so that you know how much you can afford to spend on your house.
This may determine which suburb you look in, and the number of bedrooms, or even the type of property.
Getting a pre-approval from a bank will put you in a position to move quickly when you see the house you want to buy. Working with us means that you will have access to a range of different Lenders, and we will find you the best pre-approval for your situation. To get a pre-approval you need to complete a full home loan application. Your mortgage adviser (that’s what we do!) can assist you with this and make sure that you are matched with the bank best suited to your needs.
In the past a pre-approval for a loan was valid for 12 months. After the introduction of the CCCFA the banks have reduced the pre-approval to be valid for 6 months. This can be a bit of an issue as it is taking many buyers a long time to find a house to buy, with the market moving as quickly as it is. First home buyers in particular are affected by this.
So what does a Loan Pre-approval typically mean? A loan pre-approval means that the bank has assessed:
Your income available to pay off debt.
Your spending habits and typical. monthly commitments.
Your account conduct and credit history.
Your proof of identity and residency status, if applicable for a home loan.
The bank has yet to assess the property that you are going to purchase and use as security for the loan. When you find a property that you want to purchase, the bank may want a valuation, building inspection report, a rental assessment (if it is an investment property), proof of an offer of insurance to a suitable level, and to make sure that the building has a code of compliance and has no weather tightness issues.
If the loan drawdown date is more than 6 months since the loan was approved the bank will want to check that:
Your income has not reduced, eg. you are still working and have not gone on maternity leave or changed jobs and now have a 90 day probation clause in your contract.
That your debt levels have not increased – eg. no new car loan, or credit card for new toys (even if it is interest free).
That your spending has not increased and you can still manage your financial commitments.
That you are still operating your accounts within their limits and are paying your bills on time.
So when is a Loan Pre-approval not an Approval?
I am hearing horror stories every day from other advisers where their clients have a loan pre-approval and they go unconditional on a contract, but settlement is more than 6 months after the initial loan approval. The banks are then withdrawing the loan approval as the client no longer meets the lending policy of the bank. Depending on the changes to the client’s situation a Mortgage Adviser can often find another lender to help. RNZ reported on this earlier this year.
The lesson here is work with your Adviser while you have a pre-approval and are looking for a property or waiting for settlement of your new build. If you need to change jobs or need additional funds for a replacement vehicle or things to put in your new property, talk to your Adviser first. We may be able to include the additional funds into your approval to make sure you get the best deal and loan structure. This may not only save you money it may save your butt by ensuring you have the finance when you need it on Settlement Day.