Step 1 | Pre-Contract
1. Confirm Borrowing Capacity
Talk to a mortgage broker or your bank manager
Before making an offer on a property, you need to be very clear on not only the limits of your price range, but your ability to actually pay both the sales deposit amount as well as the balance of the purchase price. The bank deposit is not the same as the sales deposit. You can learn more about the differences by clicking here.
When it comes to obtaining finance, most lenders are concerned to ensure that:
you have a suitable deposit;
you can service the debt/borrowing; and
the property you are purchasing represents a sufficient source of security for lending.
Deposit
Ideally, you will be looking to ensure that, together with your Kiwisaver, you have 20% of the final purchase price e.g. $100,000 towards a $500,000 property.
Some banks may offer lending with less . However, if you have less than 20% deposit you may be deemed a ‘Low Equity Borrower’, meaning:
the interest rates on offer are higher;
the lender will require you obtain a registered valuation as a condition of lending; and
any cash contribution amount for new lending is less.
Servicing
All Lenders will require you to provide evidence of your ability to service the borrowing/debt. This means you will likely need to have a secure source of both historic and on-going income.
Sights like settled.govt.nz have Mortgage Calculators to help you work out your costs.
Security
The property you purchase will be the primary source of security for the lender’s borrowing.
Lenders take security in the property in the form of a registered mortgage. In the event you default on the terms of your loan, the bank will need to be sure that there is sufficient equity/value in the property to recover any outstanding debt.
As touched on above, where you are a Low Equity Borrower, or there is concern that the purchase price is above market value, the lender will likely require you obtain a registered valuation of the property before approving an offer of finance.
Having a mortgage broker acting for you during this process may help you obtain the best terms available.
2. Attend open homes and search the property market
Attend open homes
By now you should have a good idea of what your borrowing capacity is as you are now considering what you’re looking for in a home. If you like a home and you attend an open home, be sure to consider the following:
Is the neighbourhood improving in value? What is the school zoning? Is there parking for visitors?
Does the property tick the boxes for what you’re looking for, for example, sun, bedrooms, bathrooms, views and outdoor living?
How much storage is there? Can more be easily added?
Is there enough water pressure? Turn on the shower and taps and flush the toilet.
What kind of exterior cladding does the house have? Is it well maintained? Check for cracks in plaster cladding.
Check that everything works - for example, open windows and turn on taps and light switches.
Note any smells that could indicate dampness or a previous flood.
Will your furniture fit?
Is there a garage on the property? How big is it? Can you use it for a car or storage?
Check the physical condition of the house inside and out. Do the floorboards move or does the floor slope?
If the property has retaining walls, check for sagging or cracks. Repairing retaining walls can be expensive.