Buying your first home can be a daunting task, but knowing what lenders are looking out for can make it a lot less tricky!
Your deposit size matters. Saving as much as possible is important when buying a home, as it reduces the amount needing to be borrowed, making you a safer bet for lenders. Not to mention it makes paying off a mortgage that much easier!
Credit reports are an important tool for lenders assessing your home loan suitability. Your Credit Score is a snapshot of your historic and current debt enquiries, defaults and payment history. What impacts a score negatively is multiple enquiries, defaults and a poor payment history regarding household and phone bills. The better your credit score, the greater the likelihood of lenders approving your loan, while a poor credit score makes you a higher risk borrower to lend money to, leading to higher interest rates, fees, or flat-out rejection.
Poor credit? The good news is, there are a number of ways you can improve your credit score. Using direct debits to ensure bills are paid on time, and keeping accounts open regardless of use, are two simple ways to improve your credit rating. Also, the majority of credit information is only stored on your credit report for up to two years, meaning that with just a few tweaks your credit score could be on the rise in no time.
Lenders use personal bank statements and credit card statements to decide how much they want to lend you, and to assess serviceability. This assesses overall account conduct such as whether you operate in surplus, whether you have lots of missed payments or dishonours, and unarranged overdrafts.
Large, undisclosed withdrawals will come under scrutiny, and general expenses including rent, food, insurance, and petrol will be looked at too. On average, most lenders require three months of statements, however in the case of self-employment or commission-based employment, lenders may require up to a year.
Lenders want to know your employment history, and how much you’re earning, so that they can assess whether you’re a stable investment, and whether you’ve got enough income coming in to pay back a loan without getting into financial hardship. In order to verify income before approval, lenders require either three months of payslips or your current employment contract specifying payment amounts and pay-cycle. This is then matched against bank statements to ensure there aren’t any discrepancies.
No kids? No worries! The less dependants you have, the more likely you are to get pre-approved. When assessing loan serviceability, children are estimated to significantly add to living-costs, so fewer children means a higher chance of approval!
Lenders want to know that you have enough money to afford to pay back a loan, so the more you start with, the greater the likelihood of approval. If you’re a Kiwisaver member, and you’ve been making contributions for 3+ years, you may be eligible to make a lump sum withdrawal from Kiwisaver to contribute towards your first home deposit. Providing you are planning on living in the house for the first 6 months after purchasing, and a minimum balance of $1000 is left in your account, the remainder is able to be put towards a first home deposit, potentially adding thousands to your deposit.
Furthermore, if your income before tax is less than $85,000 (or $130,000 for a couple), you could also be eligible for the Government HomeStart Grant. This allows you to receive an extra $5000 to contribute towards purchasing an existing home, or $10,000 per person (up to $20,000 in total) when purchasing a new home or property.
Using these options to supplement your savings when buying a first home can be CRUCIAL in securing a mortgage, giving you more money to work with, and ensuring you can afford the house of your dreams!
There’s a LOT to think about when buying a first home, but with our team of experts behind you, you could be on the property ladder in no time. To find out more, contact us now for the First Home Buyer Guide.