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What should you prepare for a home loan application?
Before meeting with your Approved Mortgage Broker, please prepare the following information:
Confirmation of your income
Your last three months statements on your cheque/everyday account. This is not to check up on what you spend, but to ensure there is no recent history of dishonoured cheques or payments.
Unless you own your home, you will be required to prove your deposit and, in some cases, prove that you have saved this yourself. Savings account statements, term deposit certificates and investment statements are examples.
Once the loan application progresses further, you will need to provide the following:
Sale and purchase
Property valuation (in most cases)
There are different rules depending on the deposit you put towards the property:
When you borrow over 80%, you will be required to pay Lenders' Mortgage Insurance. This insurance protects the bank for the higher risk associated with low equity loans (under 20% deposit).
Banks need evidence that you have been receiving the overtime for at least two years before they will take overtime into account.
Why does the bank want to see evidence of savings? For the banks security they like to see evidence of at least 5% savings. If, however the deposit is 20% or more many banks will accept that this is quite a high level of security and will not require evidence of savings. If the deposit has been gifted a letter from the person giving the funds must be obtained stating that the funds are a gift and are not repayable in any way.
This is an increasingly common option, particularly in Auckland where the starting price of property can be quite prohibitive. Generally though, because banks are quite wary of people who cannot save their own deposit guarantors will also have to be on the loan documents and must therefore also be able to afford the loan repayments. Some banks will also require those acting as guarantors to seek independent legal advice about the implications of being a guarantor before approving the loan.
Loan to Value Ratios (LVR's)
Most banks will loan up to 90% for an owner occupied property. Some will only loan up to 80% and some will go up to 95%. The more you borrow the more you will pay in Lenders Mortgage Insurance this fee varies widely so it pays to shop around. To calculate your loan to value ratio simply divide the amount you wish to borrow by the property value (excluding chattels). For example you wish to purchase a $300,000 house (excluding chattels) and have a $40,000 deposit, your LVR would be 260,000/300,000 = 86.7% LVR.
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