But also scary, overwhelming, and confusing. We will be instrumental in guiding you through this process in a step by step, totally transparent process.
At Think Financial we will work at your pace and ensure we deliver the finance information you need to make an educated informed purchasing decision.
If you are worried about not knowing what questions to ask - then don't - its not up to you to know the questions, its up to us to provide you with the answers, even if you didn't know you needed the information in the first place.
There are 4 main areas a lender will view to assess what they will lend:
How much deposit (if any) do you have for the purchase?
Do you have enough income to pay the loan off?
Is your credit conduct clean or 'adequate'?
Is the property you are purchasing acceptable to them as security for the loan?
As a first home buyer you can actually purchase with $0.00 deposit, meaning lenders will lend the full purchase price of the property.
This is a great option in the modern society where saving a deposit is incredibly difficult with all the financial commitments you may currently have.
BUT there is a 'tighter' lending criteria for this. You may need to be over a minimum income threshold, you may not be able to have or limited debt commitments (loans, hire purchases etc).
The key difference for 100% finance over 95%, or 90% finance (meaning you would have a 5% or 10% deposit) is the price structure of the loan. There are 2 main price differences; a Low Equity Fee, and an Interest Rate Margin. low equity fee
The Low Equity Fee, or Low Equity Premium, or Lenders Mortgage Insurance is a fee charged as the loan is deemed higher risk to the lender. It is a one off fee which is a % of the loan amount, the higher above 80% the loan is the greater the % of the fee, and this fee can be added to the loan. As a general rule the fee is no more than 1.5% of the loan amount at it's highest point.
example: 100% finance, Loan $300,000, LEF 1.2% = $3,600.00
90% finance, Loan $300,000, LEF 0.5% = $1,500.00 interest rate margin
This is an additional charge to your interest rate over a set time of your loan. This is generally only charged for 100% finance clients. Lending at 95%, and 90% will normally have no interest rate margin.
example: 100% finance, Loan $300,000, Interest Rate 9.00% plus 0.15% margin = 9.15%
90% finance, Loan $300,000, Interest Rate 9.00% no margin
If you do have a deposit, it can come from many sources:
Saved by you
Gift from your parents
Sale of an asset, example a car
There are 2 ways of viewing this:
What the lenders believe you can afford
What you believe you can afford
The lenders criteria is different from lender to lender, which is why one lender could decline you, but another would approve you, or why the amount you could borrow is more at one lender than another.
Most borrowers believe that if a lender would approve the loan, then you must be able to afford it, but this is sadly not the case. what you can afford
At Think Financial, we very much believe clients should absolutely know what their outgoings are to assess what is comfortable for debt payments now and in the long term. We do not want our clients suffering financially due to an over commitment to their debt. This is one reason why we offer an additional service called
When assessing your affordability you must also take into account other commitments associated with home ownership:
Whenever you apply for a loan, the lender will run a credit report on you through one of New Zealand's credit reporting agencies. The most common is Veda Advantage.
The report will show the lender which lenders have also previously checked on you (as a check stays on your report for 5-7 years), and whether you have been put into 'default' of payment or 'collection' with any previous lender or account holder.
A default is not
when you paid your power bill 2 weeks late, its when you paid an account late after the account holder sent many letters asking for payment normally over a period of months.
A collection is when the lender or account holder sent you to court to recover the funds you have not paid.
In most instances the lenders are not too worried about small account issues, like a library card, or gym membership. The lenders are worried about an on going pattern of behaviour, and defaults or collections to other lenders. your bank statements
The other check a lender will make is; they will ask you to submit your last 3-6 months transactional bank statements with your loan application. The lender is not necessarily looking at where you spend your money but:
Are there any payments to lenders that you did not state on your application form?
Are there any payment reversals, dishonoured or honoured payments?
Any over your overdraft issues?
They may look for some bad habits, like, gambling.
The best advice we can give, be honest and upfront with the lenders. If you have certain credit items in the past, be open about them in your application, in most cases they will not affect the approval of your loan. If you hide something, and the lender finds out you could get an automatic decline.
Even if the lender believes you are an acceptable risk, they will still need to confirm that the security or property you are purchasing is acceptable.
The lender looks at a variety of components related to the property:
The price or value
The condition of the property
The type of property
The future saleability
This information can be checked by a variety of sources, the government valuation, real estate agent, property listing sheets, QV online, registered valuations.
There is definitely no one size fits all! Each loan structure is as unique as each borrower . The best piece of advice we can give you is; Its not just about the cheapest fixed rate!
Most customers who contact a lender or advisor will first ask "what's the best rate you can get me?" and yes rate is very important but it is not the only criteria to asses when choosing a loan structure.
Here are some suggestions:
What can you actually afford as a minimum payment?
How much you could pay off as additional payments?
Should you fix the whole loan, or split the loan for ease of additional payments?
Should you split the loan over 2 different fixed rates?
What are the additional costs, Low Equity Fees, Interest Rate Margins?
Will the lender charge you in the future to re fix your loan?
What ownership entity will you be using - Personal Name, or Trust, or other?
Will your circumstances be changing in the future?
Does the house need renovating?
Do you have other debt that can be restructured on more cost effective terms?
and so on..
The last point about loan affordability - try not to borrow at your maximum to allow for the ability to make extra payments.
You may not realise what a few dollars a week extra can mean to your loan. Example:
Loan $300,000, Interest Rate 9.00%, Loan Term 30 years, Weekly Payment $557
Here is the scary part; if you had the loan for 30 years the total interest you would pay is $569,000 over and above the $300,000 loan!
If you can pay an extra $25.00 per week off your loan the total interest would drop to $451,500, a saving of $117,500!!! The term would reduce from 30 years to 25 years!!!
A few extra $$ does have a huge impact!
When purchasing a property there are extra costs to consider:
Loan application fee (unlikely)
Low Equtiy Fee, Lenders Mortgage Insurance Fee
Lo doc fee (if applicable)
Registered Valuation Fee
Building Inspection Fee
The first 3 fees, if applicable can be added to your loan if requested, the last 3 items will be accounts you will need to pay (if applicable).
If you are thinking about applying for a loan there are certain documents the lender will wish to view to assess your loan for approval.
The information is broken into 3 parts:
The standard forms the lenders ask for
Other documents lenders may ask for
Forms Think Financial require for compliance reasons
loan application form - signed ||
confirmation of credit card conduct |
copy of photo ID ||
copy of registered valuation |
confirmation of income ||
further information may be required |
bank account conduct (bank statements) ||
confirmation of deposit || |
Think Financial Forms
credit check ||
personal disclosure statement- signed |
copy of sale & purchase agreement ||
insurance statement - signed |
This is dependent on each application but there are general guidelines:
Once a lender receives an application, a response or approval can be given within 24 hours. If the lender is experiencing high demand this may be 48 hours.
The approval may still have conditions, and the time to make the offer unconditional will first depend on your ability to get the information required sent in to us in a timely manner. Once the lender receives the information, an answer can be received within 24 hours.
If your loan also needs to be approved by Lenders Mortgage Insurance, there may be an additional 24 hour delay.
In essence, if we receive all information you can be fully approved in 24 hours BUT in most cases we will submit the application with some but not all of the information.
Many first home buyers would like to get a pre approval for finance. This means you have submitted all the information to the lender but NOT the property information (as you are yet to find a property).
The application is based on an assumed or your maximum purchase price range.
The lender will provide a conditional approval that states you are acceptable to lend to BUT full approval will be provided upon confirmation of a sale & purchase agreement and maybe a registered valuation.
A pre approval will give you the confidence that a lender would lend to you, and you are not wasting your time!
This does not mean you are a cash unconditional buyer, you must still be subject to finance when you negotiate the sale & purchase agreement, or a similar clause (to be confirmed by your solicitor).
This does not mean you are obligated to the lender you received the pre approval from. You can decide to go with another if you choose.
This does not have an open end date, a pre approval will normally expire after 3 months.
Purchasing your first home is a huge learning curve and you need a whole team of professionals to help, the team could consist of:
Or anyone else you who would help you to make an informed purchasing decision.