How to apply for a home loan

Co-author: Ellie McLachlan

Wanting to apply for a home loan? Here are a few tips to get you started.

Before offering a home loan, lenders may require a range of proofs of your current financial situation and ability to repay the loan in the future. Whether it’s your first or twenty-first loan, and whether you apply directly or through a mortgage broker, here’re some of the main tasks you may want to consider before you apply for a home loan to buy a house.

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1. Have I researched and compared my options?

First, consider doing your research on what home loan would suit your buying situation. It’s a good idea to take into account factors such as the fees and features that apply to the loan. For an idea of some of the other factors to look out for when choosing a home loan, it could be worth looking at our Choosing A Home Loan Checklist before you sign on the dotted line.

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2. Can I repay the loan?

Lending institutions will want to see your proof of income. If you’re employed this will include your payslips (usually a few months’ worth of payslips, and more in some cases), and if you’re self-employed this will include your tax returns.

If you are relying on any other income sources to repay the loan, you will need evidence of this too. For example, lease information (for rental income), shareholding statements or statements confirming any Government benefits.

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3. What are my living expenses?

A written budget could help you keep track of your cash flow and plan your day-to-day savings and expenses – and if you decide to write yourself one, make sure it’s realistic. We’ve put together some tips on how to make your budget stick.

4. What is my credit rating or credit score?

Your credit score is important because it may influence how much credit a home loan lender is willing to give you as a borrower. A lower credit rating may be viewed by lenders as being a bigger risk as it could indicate an inability to meet repayments.

It’s a good idea to check your credit rating to get an idea of where you stand. Check out our summary of how to check your credit score.

5. Do I have a savings history?

Particularly if it’s your first big loan, you’ll need to show that you don’t spend everything you earn. If you need some help saving, check out tips from a fellow first home buyer.

6. Am I in stable employment?

While a recent change in jobs won’t disqualify you from a loan, it may make it more challenging. Lenders are generally more comfortable lending to someone who has had a steady employment history, rather than someone who has had frequent job changes or long gaps in employment.

7. Have I considered my current net worth?

Again, make sure your estimate is realistic. Your net worth is essentially a grand total of all your assets minus your liabilities.

8. Do I have a deposit?

You’ll need to put down a deposit and pay any upfront fees, taxes and other purchase costs. Most lenders may require you to have at least a 20% deposit, and some may even be willing to accept a minimum of 5%. While the Reserve Bank of New Zealand’s recent changes mean some banks can offer more loans to people with a lower deposit, paying a smaller deposit may mean paying extra fees.

If you can put a 20% deposit down you could end up paying less interest. and you may be able to avoid paying Lenders Mortgage Insurance.

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