Getting a mortgage? Here are 15 tips for first home buyers

Don’t go straight to your current bank by default. Check the interest rates on offer at several banks first to find the best deal - or get a mortgage broker to help you shop around. 

You should only borrow what you need and what you can easily afford to repay. As a rule of thumb your repayments should be less than 30% of your gross pay, and you should have savings put aside just in case. Borrowing less will make having a mortgage easier and that lenders are more likely to approve your application. 

Before applying for a mortgage you should make sure your accounts are looking good. Avoid having a record of going into unarranged overdraft or having payments bounce, as this might make lenders think you can’t manage your mone

Your credit report and credit score is a record of all borrowing you’ve done that lender’s check when you’re getting a mortgage in NZ. It’ll include all debt you hold, credit you’ve applied for, and any payments you’ve missed. You can find out what it is with one of three credit reporting agencies in New Zealand Centrix, Equifax and illion. 

If there are any inaccuracies in your report contact any of the above agencies to correct it. 

Lenders want to see that your finances are organised and you’re spending less than you earn. To make sure this is the case it’s a great idea to create a budget including all your income and expenses. You could use a good old-fashioned spreadsheet to do this, or smart budgeting applications like PocketSmith. 

If you’ve got credit cards, hire purchase cards, personal loans, Afterpay or other forms of consumer debt, it’s time to get rid of them. Paying this stuff off before you make a home loan application will increase your chances of approval.

Banks consider these repayments as expenses, which will decrease the amount of debt you are able to afford under their calculations. 

Your lender is going to want to see proof that you’re employed and will continue to earn an income. If you’re on a salary, dig out your most recent employment contract - if you’re self-employed, you’ll need at least two years of financial statements (tax returns may be enough). 

If you've been self employed for less than two years this is going to be a tough box to tick - talk to a mortgage broker for help with finding a solution. 

When you’re applying for a mortgage, lenders like to see that you’re reliable, steady and dependable. They want to know that your income and expenses are unlikely to change any time soon - meaning you’ll be able to make mortgage repayments. 

So don’t make any big changes before applying for a mortgage. Changing from a salary to being self-employed, taking out a new car loan, or switching jobs could hurt your chances. 

Lenders love to see savings, so if you’re putting aside a certain amount every month, or investing regularly - make this clear in your application so your lender doesn’t confuse those transactions with something else. 

One of the best ways to prove you can afford a mortgage is to simply make sure your current rent payments plus savings are more than your mortgage repayments would be. Making this amount 20% higher than your mortgage repayments is a good place to start.

Your lender will look at the last three months of your bank transactions to understand your expenses and income. For those three months, be on your best behaviour - reduce your spending, increase your saving, and avoid missing payments or going into unarranged overdraft.

Before you look at a single home, it’s a good idea to have pre-approval in place. This is essentially an indication from your lender that they’ll lend you a certain amount if nothing else changes and they approve of the property you buy. It’ll give you confidence that you can afford the properties you’re considering and real estate agents may take you more seriously.

It’s a good idea to get all your documents together before you make a home loan application. This may include:

• Photo ID.

• Three months of bank statements. 

• Your most recent pay slip. 

• Your employment contract and/or a letter from your employee confirming your salary, occupation and employment status. 

• Letters from the relevant agencies if you’re receiving any benefits.

• Gifting certificates signed and witnessed by a solicitor if you’ve been gifted all or part of a deposit. 

• A letter from your KiwiSaver provider confirming what can be withdrawn for the purchase (if applicable). 

Need a hand getting this stuff together? Your mortgage broker can let you know what you need and help you prepare everything.