The vast majority of first home buyers will need finance from their bank (or other lenders) to purchase their first home. When starting the journey towards home ownership, one of the first things you should consider is obtaining pre-approval from a bank for your home loan. Pre-approval is an indication that a bank is prepared to lend to you up to a certain amount, subject to the bank’s terms and conditions being satisfied.
Generally, the purchase price of your home will be funded from a combination of your financial contributions (including your KiwiSaver funds and other savings or gifts), with the balance from bank lending (which will be secured by a mortgage over the property).
It is a good idea to obtain pre-approval before you start the house-hunting process. Without pre-approval, you might find a house you love and make a successful offer, only to discover you’re your bank is not willing to lend you enough to meet the purchase price. This can waste everyone’s time and money and make the entire process more difficult and stressful.
When assessing your application for pre-approval, the lender will generally look at your income, spending, existing debts, and savings to assess whether you can afford the loan and meet the required mortgage repayments.
You can either visit a mortgage broker to start the pre-approval process or go directly to your bank. Mortgage brokers shop around the various banks (and other lenders) and help you find an option that is suitable for your circumstances. In many cases, you will not pay the broker directly, as the broker will receive a commission from the bank you ultimately obtain your loan from.
Pre-approval is usually subject to certain conditions before the bank will give final approval, such as reducing debt, obtaining a valuation of the property, and obtaining full insurance for the property. These conditions will need to be satisfied before the bank will offer you finance on an unconditional basis. It is therefore important to understand exactly what conditions apply to your pre-approval before making an offer.
If you have any more questions about the pre-approval process, or have received pre-approval and are wondering what to do next, please reach out to our property team for some guidance.
