THE LOAN APPROVAL OR PRE-APPROVAL PROCESS-1^st steps

APPLICATION IS COMPLETED, SIGNED AND SUBMITTED FOR ALL APPLICANTS WITH SUPPORTING PAPERSincluding-

• EVIDENCE OF INCOME – PAY SLIPS OR FINANCIALS IF IN BUSINESS
• CURRENT 3 MONTHS BANK STATEMENTS FOR ALL APPLICANTS FOR ALL BANK ACCOUNTS OPERATED
• EVIDENCE OF DEPOSIT SAVED(LOCAL OR OVERSEAS ACCOUNTS)WHETHER  BUYING FOR THE FIRST TIME OR OTHERWISE OR  DETAILS OF EQUITY IN EXISTING PROPERTY HELD BY APPLICANTS
• EVIDENCE OF RESIDENCY OR CITIZENSHIP /PHOTO  ID FOR ALL APPLICANTS
• PRE-APPROVAL IS NORMALLY RECEIVED WITHIN 48-72  HOURS  OR 2 – 3 WORKING DAYS NORMALLY

THE APPROVAL OR PRE-APPROVAL LETTER NORMALLY OUTLINES TERM OF MORTGAGE (NUMBER OF YEARS), INDICATIVE INTEREST RATES, INDICATIVE REPAYMENTS (DIFFERENT LENDERS SEND DIFFERENTLY STRUCTURED OFFER LETTERS) & IS NORMALLY WITH CONDITIONS – WHAT ARE THE CONDITIONS?

FURTHER EVIDENCE OF DEPOSIT (ESPECIALLY IF TRANSFERRING FROM OVERSEAS)

FURTHER EVIDENCE OF INCOME

FURTHER EVIDENCE OF BANK STATEMENTS- MAY BE MISSING SOME INFORMATION ORENTRIES ON THE BANK STATEMENT NEEDING CLARIFICATIONS

SALE & PURCHASE AGREEMENT ,6 MONTHS LOAN STATEMENTS IF REFINANCING

SOME LENDERS ASK FOR A BUILDING INSPECTION REPORT IF THE PROPERTY HAS BEEN BUILT DURING A CERTAIN PERIOD (LEAKY BUILDING?)

REGISTERED VALUATION IF USING EQUITY TO FUND NEXT PROPERTY PURCHASE OR IF PURCHASING THROUGH PRIVATE TREATY AND POSSIBLY REGISTERED VALUATION ON THE NEW PROPERTY BEING PURCHASED

POSSIBLE UPPER LIMIT ON MORTGAGE TERM

WE HAVE BRIEFLY TALKED ABOUT THE APPLICATION, DETAILS OF DOX REQUIRED FOR AN APPROVAL/PREAPPROVAL. WE HAVE YESTERDAY TALKED OF THE CONDITIONS A BANK MAY PUT DOWN ON AN OFFER LETTER.

YOU MUST FULLY UNDERSTAND THE CONDITIONS AND FINANCIAL IMPLICATIONS OF THE PRE-APPROVAL:

WHAT IS THE LOAN AMOUNT APPROVED-DOES IT MATCH YOUR NEEDS- IS IT WHAT YOU WERE PREPARING FOR? OR IS IT LESS THAN WHAT YOU WERE EXPECTING.

WHAT IS THE LOAN TERM-ARE YOU COMFORTABLE- THE LONGER THE MORTGAGE TERM, THE MORE INTEREST U END UP PAY ING THE LENDER.

THE SHORTER THE MORTGAGE TERM, YOU PAY MORE ON REGULAR INSTALMENTS – BUT YOU SAVE ON INTEREST COSTS.YOU COULD SAVE THOUSANDS OF $$$

WHAT ARE REPAYMENTS BASED ON THE CURRENT INTEREST RATE& MORTGAGE TERM? REMEMBER TODAY’S INTEREST RATES ARE LOW AND REPAYMENTS WILL ALSO BE LOWER.INTEREST RATES ARE BOUND TO INCREASE AT SOME STAGE AND THEREFORE YOUR MORTGAGE INSTALMENT WILL ALSO INCREASE

CAN YOU AFFORD REPAYMENTS BASED ON THE CURRENT INTEREST RATE AND THE TERM CHOSEN

WHAT WILL REPAYMENTS BASED ON HIGHER INTEREST RATES BE IN FUTURE (CALCULATE AT 9 – 10% JUST TO CHECK YOUR BUDGET CAN WITHSTAND THE REPAYMENTS). THERE SHOULD NOT BE ANY ROOM FOR A SHOCK LATER WHEN INTEREST RATES ARE HIGHER THAN TODAY’S INTEREST RATE.

CAN YOU AFFORD REPAYMENTS ON THE HIGHER INTEREST RATE LATER ON

DO YOU HAVE ANY MONEY LEFT OVER IN THE HOUSEHOLD BUDGET AFTER MEETING ALL EXPENSES/COMMITMENTS AND THE MORTGAGE REPAYMENT

IF YOU HAVE ANSWERED NO TO THE SAVINGS QUESTION – YOU NEED TO BORROW LESSER

IF YOU HAVE ANSWERED YES – YOU COULD START PLANNING FOR THE PROPERTY PURCHASE AND START LOOKING FOR A SUITABLE PROPERTY.

AFTER YOU HAVE DRAWN DOWN THE HOME LOANAND BEGINNING TO SETTLE DOWN IN THE NEW HOME.DO YOU NEED TO BORROW AGAIN AFTER THE PURCHASE HAS SETTLED?

• TO FURNISH THE HOUSE – NEW FURNITURE,CURTAINS,CARPETS& NEW APPLIANCES
• TO UPGRADE FACILITIES– RENOVATIONS OF KITCHEN OR BATHROOMS OR ADDITIONS TO THE DWELLING-like a deck

• TO REPAY OTHER DEBTS YOU HAVE TAKEN IN THE INTERIM AFTER THE PREAPPROVAL
• TO TRAVEL PERHAPS…TO VISIT FAMILY

IF YOUR ANSWER IS YES….YOUR PLANNING HAS NOT BEEN CORRECT OR YOU HAVE IGNORED THESE EXPENSES THINKING YOU CAN MANAGE WITH WHAT YOU HAVE

IF YOUR ANSWER IS YES….YOU NEED TO BORROW LESSER OR KEEP SOME MONEY ASIDE FOR THESE EXPENSES -CONSIDER OTHER OPTIONS AVAILABLE TO YOU TO FUND THESE EXPENSES OR DELAY THE SPEND ON THESE.

PERHAPS BUDGET FOR THESE EXPENSES BEFORE YOU CONSIDER BUYING OR COMPLETE THESE PURCHASES BEFORE BUYING THE PROPERTY

IF YOU ARE REPAYING HUGE DEBTS…YOU NEED TO REPAY DEBTS FIRST BEFORE CONSIDERING BUYING

OR GET SOME FINANCIAL ASSISTANCE FROM FAMILY

THE LOAN PRE-APPROVAL PROCESS IS A DEFINITE GUIDE FOR YOUR CURRENT AND FUTURE BUDGETS
HOW MUCH SHOULD ONE IDEALLY BORROW FOR THE HOME LOAN?
This is your affordability.
THIS CAN BE TRICKY FOR A FIRST-TIME BUYER BUT THE ANSWER IS NORMALLY STRAIGHTFORWARD FOR THOSE WITH A BUDGET.
HOW MUCH RENT ARE YOU CURRENTLY PAYING EVERY WEEK?

IS THE LOAN APPLICATION A JOINT APPLICATION? IF YES, HOW MANY INCOMES WILL SERVICE THE LOAN? WHAT IS THE NET WEEKLY INCOME FROM ALL SOURCES?ARE THE INCOMES PERMANENT OR TEMPORARY?(JOB PERMAMENT?)

HOW MANY CHILDREN DO YOU SUPPORT?ARE YOU SPENDING ON DAYCARE FOR YOUR KIDS?

ARE YOU PLANNING ON STARTING A FAMILY IF YOU HAVE NO KIDS?

ARE YOU REPAYING ANY LOANS CURRENTLY?

WHAT ARE YOUR CURRENT WEEKLY EXPENSES – INCLUDE ALL EXPENSES NO MATTER HOW MINOR THEY MAY SEEM.WHAT ARE YOUR PLANNED FUTURE EXPENSES?

HOW MUCH MONEY ARE YOU LEFT WITH AT THE END OF THE MONTH AFTER MEETING ALL EXPENSES?

THE MONEY LEFT/SAVED PLUS YOUR RENT IS NORMALLY WHAT YOU CAN AFFORD.

REMEMBER THE 30% DSR RULE FOR BORROWING.

DO YOU HAVE ANY QUESTIONS?

How much can I borrow?

Even before you start looking for a home you need to know how much you can afford to spend on your loan repayments. You will need to work out your family budget – do your maths first…

You will need at least a 5% deposit to put down towards the purchase of your home. This 5% represents your contribution towards the purchase of your home. Ideally you will have saved this amount over the last 3 months or more. In exceptional situations, the lender may consider equity from a family member’s home as a deposit.

How much does your family earn every week/ fortnight/month/year? What is the family spending every week/ fortnight/month/year …include all expenses and do not forget to include any repayments on hire purchases, car & personal loans & any other borrowings. Are you planning a holiday? Budget for this holiday as well.

What are you able to save at the end of the month after providing for all expenses….The savings you have achieved towards the end of the month, after providing for all expenditure, plus the rent you are currently paying should be a guideline to the amount you can afford towards your mortgage repayments and costs.

Most banks & lenders will allow you to borrow between 3 – 5 times your gross annual incomes. The actual amount you can borrow will depend on a number of other factors such as….number of dependent children in the family, size & repayments of any personal borrowings, the type of property you may want to purchase, the amount of initial deposit

RULE OF THUMB – 30% OF GROSS ANNUAL HOUSEHOLD INCOME FOR THE APPLICANT/S SHOULD BE USED TO REPAY ALL BORROWING.

HOW MUCH TO BORROW? THIS IS AN EXAMPLE:

COUPLE WITH 2 SCHOOL-GOING CHILDREN ON COMBINED GROSS ANNUAL INCOME OF $125,000(APPROXIMATELY $100,000 NETT OR $8,400 MTHLY)
COUPLE HAS A JOINT BANK ACCOUNT-SALARIES GO IN HERE. MRS. MANAGES THE BUDGET.CREDIT CARD USED – PAID IN FULL.
THEY ARE PAYING WEEKLY RENT OF $ 495 FOR A 3 BEDROOM HOUSE IN CENTRAL AUCKLAND.CLOSE TO SCHOOL FOR THE KIDS.
AFTER THE MONTH’S GROCERY EXPENSES AND ALL UTILITY BILLS, PAY TV,PETROL, BUS,LIFE & OTHER PERSONAL INSURANCE, CONTENTS & CAR INSURANCE ETC COSTS ARE MET;THEY HAVE SAVED APPROXIMATELY $800 IN YOUR BANK ACCOUNT. MRS. ALSO HAS PUT AWAY ANOTHER $200 INTO AN ACCOUNT THAT NOBODY IS AWARE OF OR YOU SAVE IT AS CASH.
LET’S WORK THAT OUT –
RENT @ $495
X 52 WEEKS = $ 25,740
SAVINGS @$ 800 PER MONTH SAVED = $ 9,600
ADD THESE UP NEHA? $35,340 OR SAY $ 35,000 FOR THE YEAR.

THIS IS WHAT THIS FAMILY SHOULD BE IDEALLY LOOKING TO REPAY AS THE MAXIMUM LOAN INSTALMENT PROVIDED YOU DO NOT HAVE ANY BORROWINGS CURRENTLY OR OTHER SPENDING PLANS IN THE FUTURE.

THIS FIGURE OF $ 35,000 REPRESENTS 28% OF GROSS ANNUAL INCOME.

WHAT LOAN AMOUNT REPAYMENT DOES THIS REPRESENT AT CURRENT VARIABLE RATES – APPROXIMATELY $450,000 @ 5.75%?OVER 25 YEARS.

CAN YOU GUARANTEE INTEREST RATES WILL REMAIN THE SAME?

INTEREST RATES WILL INCREASE –

LET’S TAKE 7.50% AS THE EXAMPLE –

THE LOANAMOU,/pNT IS APPROXIMATELY $415,000 BASED ON 7.50% OVER 25 YEARS

I WOULD ADVISE THE FAMILY TO SETTLE FOR THIS LOAN AMOUNT OR EVEN LOWER THAN THISIF I CAN FIND A SUITABLE PROPERTY.

BUT CAN THE FAMILY FIND A SUITABLE PROPERTY AT THIS PRICE LEVEL?

HOWEVER, BANKS WILL LEND THE FAMILY MORE THAN $450,000 IF THE FAMILY APPLIES FOR THIS AMOUNT.

IN THIS SITUATION, THE COUPLE CAN EVEN GET A LOAN APPROVAL FOR $600,000 ON A 5% DEPOSIT.

MORE NEXT WEEK ON AFFORDABILITY.