Steps to Getting Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is an essential first step in your home-buying journey. It gives you a clear idea of how much you can borrow and shows sellers that you’re a serious buyer. Here’s a comprehensive guide to help you navigate the pre-approval process with confidence.
1. Check Your Credit Score
Before applying for pre-approval, it’s crucial to check your credit score. Your credit score plays a significant role in determining your eligibility for a mortgage and the interest rate you’ll be offered. You can check your credit score for free once a year through credit reporting agencies like Centrix, Equifax, or illion.
If your credit score needs improvement, take steps to boost it:
- Pay bills on time
- Reduce outstanding debts
- Avoid applying for new credit
- Check your credit report for errors and dispute any inaccuracies
2. Gather Necessary Documents
Lenders will require various documents to assess your financial situation. Prepare the following:
- Proof of identity (passport or driver’s licence)
- Proof of address (recent utility bill or bank statement)
- Proof of income (recent payslips, employment contract, or tax returns for self-employed individuals)
- Bank statements (usually for the last 3-6 months)
- Details of assets and liabilities
- KiwiSaver statements (if you plan to use KiwiSaver for your deposit)
Having these documents ready will streamline the application process and demonstrate your organisational skills to potential lenders.
3. Determine Your Deposit
Most lenders require a deposit of at least 20% of the property’s value. However, some may accept a lower deposit, especially for first-home buyers. Consider your savings, KiwiSaver funds, and any potential gifts from family members when calculating your deposit.
If you’re a first-home buyer, you might be eligible for a First Home Grant or a First Home Loan, which allows you to purchase a home with just a 5% deposit. Check the Kāinga Ora website for eligibility criteria and details.
4. Calculate Your Budget
Before applying for pre-approval, it’s essential to understand how much you can comfortably afford to borrow. Use online mortgage calculators to estimate your potential repayments based on different loan amounts and interest rates. Remember to factor in additional costs such as rates, insurance, and maintenance.
The Sorted website offers a comprehensive mortgage calculator that can help you understand the impact of different variables on your repayments.
5. Choose a Lender or Mortgage Broker
You have two options for obtaining mortgage pre-approval: directly through a lender or with the help of a mortgage broker. Major banks like ANZ, ASB, BNZ, and Westpac offer pre-approval services, as do many non-bank lenders.
A mortgage broker can be particularly helpful if you’re unsure about your options or have a unique financial situation. They have access to multiple lenders and can often negotiate better terms on your behalf.
6. Submit Your Application
Once you’ve chosen a lender or broker, it’s time to submit your pre-approval application. This can usually be done online, over the phone, or in person at a branch. Be prepared to answer questions about your income, expenses, and financial goals.
7. Wait for the Assessment
The lender will assess your application, which typically takes a few days to a week. They’ll review your credit history, income, expenses, and overall financial situation to determine how much they’re willing to lend you.
8. Receive Your Pre-Approval
If your application is successful, you’ll receive a pre-approval letter stating the amount you’re approved to borrow and any conditions attached. This pre-approval is usually valid for 3-6 months, giving you time to find a property.
9. Understand the Conditions
Pre-approvals often come with conditions. Common conditions include:
- Satisfactory property valuation
- Confirmation of income and employment
- Evidence of your deposit
- Proof of insurance for the property
Make sure you understand and can meet all conditions before making an offer on a property.
10. Start House Hunting
With your pre-approval in hand, you can start looking for properties within your budget. Remember, just because you’re approved for a certain amount doesn’t mean you should borrow the full amount. Stick to a budget that allows you to comfortably make repayments and maintain your lifestyle.
Final Thought
Getting pre-approved for a mortgage is a crucial step in the home-buying process. It gives you a clear understanding of your borrowing capacity and puts you in a stronger position when making offers on properties. By following these steps and being thorough in your preparation, you’ll be well on your way to securing your dream home.
Remember, pre-approval is not a guarantee of final approval. Once you find a property, you’ll need to apply for full approval, which will take into account the specific property you’re purchasing. Stay in close contact with your lender or broker throughout the process to ensure a smooth journey to homeownership.
For more information on the home-buying process, including government assistance programs and financial advice, visit the Sorted website or speak with a qualified mortgage adviser.