THE LITTLE THINGS CAN MAKE A DIFFERENCE - The most frequent question we get asked is “How much can i afford?” especially if you are a first home buyer and the process is all to new.
Well, the precise answer to this can be influenced by many things and quite often these factors are ones that massively affect how much you’re able to borrow.
Firstly, it can depend on which bank you are looking to borrow from as they do vary in credit policies which determine the amount they will lend. You may have been loyal to your bank for decades, but when it comes to borrowing for a mortgage it’s more important that you get the very best deal for you. It’s worth looking around at your options.
The two main factors that are considered when looking at how much someone can borrow are firstly, deposit and secondly, income.
Deposit
No matter who you’re looking to get your mortgage with the more deposit you have the more chance you have of getting your loan approved. This was made even more prominent with the latest round of LVR (Loan to Value Ratio) restrictions which mean that the banks are pushed to lend less to customers with deposits of less than 20%.
It also matters where your deposit came from. The bank generally likes to see that you have saved your deposit – particularly if you are borrowing over 80%. That’s because it shows a degree of sensible financial management, like the ability to budget your income and outgoings.
Kiwisaver and savings accounts are good examples of this and both can be used to support your application for a mortgage.
A deposit can also be a gift from a family member or inheritance. The gift must generally be non-repayable, but sometimes the bank will consider a deed of debt that is repaid on sale of the house.
Income
There are many different types of income and the requirements for what is counted as income can vary from bank to bank.
- Salary is easy to verify and can be a major part.
- Wages or hourly rates generally need to be relied upon based on the minimum possible hours worked.
- Casual work can be considered from bank to bank and some banks take into consideration regular overtime.
- Commissions can generally be relied upon to a certain level after two years.
All of this does vary from bank to bank – which is why it is so important to work out which is the best bank for your specific situation.
After that, all your outgoings are taken into consideration. This includes any loans or hire purchase payments you are making, student loan payments and generally 3% of your credit card limits. If your debt level/credit card limits are high the amount you will be able to borrow will be lower.
The next thing is your living expenses. The mortgage advisor will go through a monthly living expenses budget with you that takes into consideration all your outgoings including utilities and personal expenses. It’s important to gain a realistic image of your living expenses as you don’t want to be uncomfortable because your payments are very high, but likewise, you’ll need to be realistic in that you might have to cut back in certain areas to afford a mortgage.
This budget also factors in the things that you might not already be paying. It is based on a new property purchase so if you are renting it will now include council rates and dwelling insurance.
Once we have determined exactly what your outgoings are we can then work out how much you can afford to borrow and which bank may work best for your individual circumstances.
Of course, you could do all of this yourself. But chances are that if you’re able to buy a house you, and your partner, are likely to be working quite a bit and visiting multiple banks may not be possible. Likewise, simply choosing a bank based on convenience is unlikely to reward you with the best mortgage available to you.
So why not talk to us. Our services are free to you and we can go to multiple banks on your behalf to find the best mortgage possible for your circumstances. Call us for a free chat.
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This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.