ARE YOU MORTGAGE READY? 5 Tips For a Successful Mortgage Application.

So you’ve decided that this is going to be your year of owning your own home! And if you need to borrow, you’re going to need to complete a mortgage application so it’s important to understand what the banks look for in the mortgage approval process.

In a mortgage application, banks assess your financial position and look at your ability to service a mortgage. They like to know what kind of risk you present before they can determine how much they are willing to lend you.

In this article, we will explore the key measures used by banks to assess your mortgage application so you can see just how “mortgage ready” you really are.

Tip #1. Check Your Credit Score.

Your credit score provides the bank with valuable insights into how you manage your debts.

A clean credit history increases your chances of a successful mortgage application as it demonstrates responsible borrowing behaviour.

Before applying for a home loan, obtain a copy of your credit file to check for any negative marks that could impact your application.

The most popular sites to do this are Centrix Equifax or ClearScore. Maintaining a good credit score requires responsible financial habits, such as paying bills on time, keeping within your credit card limit and avoiding excessive borrowing.

By diligently managing your credit, you can show the bank that you are a trustworthy borrower which will improve your eligibility for a home loan.

Tip #2. How is Your Bank Account Looking? 

Good Account conduct is essential when applying for a home loan.

The banks will want to look at the last 3 months worth of your bank account statements to make sure you are managing your money responsibly.

If you go into overdraft on your accounts regularly this can be seen as a negative so you will need to watch this closely. Furthermore if you go into an unarranged overdraft on a regular basis this is a definite “red flag”, so make sure you keep your accounts looking good at least 3 months prior to applying for a home loan.

Tip #3. Clear The Debt Decks. 

Having outstanding short term debts, such as credit cards, BNPL (Buy Now Pay Later) or personal loans, can definitely impact your borrowing eligibility.

Before applying for a home loan, it’s beneficial to try and pay off any existing debts.

You could also consider consolidating multiple debts into one which can help to reduce your overall repayments.

Prioritise paying off high-interest debt first to minimise your ongoing interest charges which will help to free up more funds to pay down your other debt or boost your deposit!

Tip #4. Do You Really Need That Massive Credit Card Limit?

When the banks assess your home loan application, they take into account your credit card limits, not just the balance you have owing.

If you have unused credit card limits, consider reducing or eliminating them altogether.

While it may seem counterintuitive, reducing your credit card limit can actually improve your borrowing power.

Lenders will take into account the minimum monthly payments (usually around 3%) based on your credit card limit, so a lower limit means a lower minimum payment assumption when they are running their calculations.

For example: If you have a balance owing on your credit card of $1,500, the minimum monthly payment would be around $45.

However the bank will take the minimum monthly payment based on the actual limit, so if your limit was $10,000 then the minimum monthly payment they would account for would be around $300.

How much extra mortgage does $300 per month get you? It turns out to be about $40,000 – so you could be missing out on that extra $40,000 towards your new home.

Tip #5. Talk to a Mortgage Adviser Upfront about your Mortgage Application

The best time to involve a Mortgage Adviser is the moment you decide that you are going to buy your own home.

A Mortgage Adviser can assess your financial situation upfront and highlight the things you need to clean up or concentrate on first, which will save you a lot of time and hassle.

Working closely with a Mortgage Adviser will also enable you to put your best foot forward when applying for a home loan and navigate the lending landscape with confidence so reach out if you need a hand.

Applications for finance are subject to meeting the lenders criteria, terms, and conditions. Refer to our website www.hbmi.co.nz for our Public Disclosure Document.