How to Get Pre-Approved for a Mortgage
Securing pre-approval for a mortgage is a critical step in the home-buying process. It not only gives you a clear idea of your budget but also signals to sellers that you are a serious buyer. Here’s a comprehensive guide on how to get pre-approved for a mortgage.
1. Understand the Benefits of Pre-Approval
Getting pre-approved for a mortgage offers several advantages:
- Know Your Budget: Pre-approval provides a clear indication of how much you can borrow, helping you focus on properties within your price range.
- Stronger Negotiating Position: Sellers and real estate agents view pre-approved buyers as serious contenders, which can make your offers more attractive.
- Faster Loan Approval: With pre-approval, the process of securing full loan approval is expedited, allowing you to move quickly when you find the right property.
2. Gather the Necessary Documents
To apply for pre-approval, you will need to provide various documents that demonstrate your financial stability and ability to repay the loan. These typically include:
- Proof of Identity: Valid photo ID such as a passport or driver’s licence.
- Proof of Address: Utility bills or bank statements showing your current address.
- Proof of Income: Recent payslips, bank statements, or an employment contract. If self-employed, you will need financial statements prepared by an accountant.
- Proof of Deposit: Evidence of your deposit, which could be in the form of bank statements, KiwiSaver withdrawal confirmation, or a gifting letter.
- Bank Statements: At least three months of bank statements for all accounts used to pay your expenses.
3. Check Your Credit Score
Your credit score plays a significant role in the pre-approval process. Lenders use it to assess your creditworthiness and determine the interest rate for your loan. You can check your credit score through various online services to ensure there are no issues that need addressing before you apply.
4. Choose a Lender or Mortgage Broker
You can apply for pre-approval directly through a bank or via a mortgage broker. Each option has its benefits:
- Directly Through a Bank: This can be quicker and may offer better rates if you have an existing relationship with the bank.
- Through a Mortgage Broker: Brokers can provide access to a wider range of loan products and may be able to negotiate better terms on your behalf.
5. Submit Your Application
Once you have gathered all necessary documents and chosen a lender, you can submit your application. This can often be done online, over the phone, or in person. Be prepared to answer detailed questions about your financial situation, employment history, and future plans.
6. Understand Conditional Pre-Approval
Conditional pre-approval means that the lender is willing to lend you a certain amount, subject to specific conditions being met. These conditions might include:
- Property Valuation: An independent valuation of the property you wish to buy.
- Signed Sale and Purchase Agreement: A copy of the agreement once you have found a property.
- LIM Report: A Land Information Memorandum report, especially if it’s a private sale.
7. Maintain Financial Stability
During the pre-approval period, it’s crucial to maintain financial stability. Avoid making significant changes to your financial situation, such as switching jobs or taking on new debt, as this could affect your pre-approval status.
8. Confirm Property Insurance
Before finalising your mortgage, your lender will require proof that you have arranged property insurance. This is essential to protect both your investment and the lender’s interest in the property.
9. Seek Government Assistance if Eligible
If you are a first-time homebuyer, you may be eligible for government assistance such as KiwiSaver first-home withdrawal, First Home Loan, or Kāinga Whenua loan. These programmes can provide additional financial support and make it easier to secure a mortgage.
10. Review and Renew Your Pre-Approval
Pre-approval typically lasts for 90 days but can be renewed for another 90 days if your circumstances haven’t changed. Regularly review your pre-approval status and ensure all conditions are met to maintain your buying power.
Getting pre-approved for a mortgage is a vital step in the home-buying journey. By understanding the benefits, gathering the necessary documents, and maintaining financial stability, you can secure pre-approval and confidently navigate the property market. Whether you choose to work directly with a bank or through a mortgage broker, being pre-approved positions you as a serious buyer and helps streamline the purchasing process.