Answering your Home Loan Questions

I've been seeing a few questions recurring in industry discussions recently. 

With the housing market a hot topic amongst the election and our current NZ economy, a lot of people are looking to learn more about their current or potential lending. I thought it may be beneficial to collate the questions I often get asked or see online and answer them here.

This advice is general in nature and a full financial review is always recommended for tailored advice for your specific situation.

Questions Asked By You...

How do I buy at auction?

Buying a house at auction in New Zealand is a straightforward process, but it can be competitive and fast-paced. Here are the steps to follow:

1. Research:

• Research the property market and location where you want to buy. Determine your budget and what type of property you're looking for.
• Attend other auctions as a spectator to get a feel for the process.

2. Pre-Auction Preparation:

• Get your finances in order. You will need a 10% deposit on the day of the auction, and the rest within a specified timeframe.
• Arrange unconditional approval for a mortgage if needed.
• Engage a solicitor or conveyancer to review the auction agreement and provide advice.

3. Property Inspection:

• Inspect the property. Attend open homes or arrange private viewings to assess the condition and suitability of the property.

4. Legal Due Diligence:

• Review the auction documents, which should be available from the auctioneer or the real estate agent.
• Check for any restrictions, covenants, or encumbrances on the property.
• Ensure you understand the terms and conditions of the auction.

5. Attend the Auction:

• Attend the auction at the specified time and location.
• Bring identification and be ready to pay the deposit if you are the successful bidder.

6. Bidding:

• When the auction begins, you can bid by raising your hand or calling out your bid.
• Be aware of your budget and stick to it. The highest bidder wins the property.

7. Winning the Auction:

• If you are the winning bidder, you will be required to sign the auction contract and provide the deposit.
• The settlement date will be specified in the contract.

8. Unsold Properties:

• If the property doesn't reach its reserve price, it may be passed in, and you can negotiate with the seller afterward.

9. Post-Auction Steps:

• Complete the sale by paying the remaining purchase price on the specified settlement date.
• Transfer ownership through legal channels with the help of your solicitor or conveyancer.

It's crucial to do your due diligence, both in terms of property research and understanding the auction process. Additionally, consider seeking professional advice from a real estate agent, solicitor, or conveyancer to ensure that you are making an informed decision and handling the transaction correctly.

Please note that the auction process can vary slightly in different regions of New Zealand, so it's a good idea to consult with local real estate professionals for specific guidance in your area.

Can I offer on two properties at once?

Making an offer on two properties when you only have financing approval for one can be risky and may not be advisable. Here are a few things to consider:

1. Financing Approval: Your financing approval is typically specific to a particular property. Lenders assess your ability to repay a loan based on various factors, including your income, credit score, and the specific property's value. If you make offers on two properties and your financing is only approved for one, you may not be able to secure the necessary funds for the second property.
2. Contingencies: Most real estate purchase contracts include contingencies that allow you to back out of the deal if you are unable to secure financing. However, if you're making offers on two properties, you'll need to be careful with the wording of these contingencies to ensure you have an "out" if your financing falls through for one of the properties.
3. Deposits: When you make an offer on a property, you typically need to provide a deposit to demonstrate your serious intent to purchase. If you make offers on two properties and then have to back out of one because of financing issues, you may risk losing the deposit for that property.
4. Seller Expectations: Sellers may not take your offer seriously if you don't have financing approval in place for both properties. They may opt for another buyer who has secured financing for their intended purchase.
5. Legal Implications: Depending on the specifics of your situation and local real estate laws, attempting to make offers on two properties with only one financing approval may have legal consequences or complications.

It's generally a better approach to have financing approval in place for each property you intend to make an offer on. Alternatively, you could prioritize one property and make an offer on it, secure financing approval, and, if that offer is accepted, then focus on the second property. If your circumstances change, you can always revisit the second property later.

It's crucial to consult with a real estate professional and your lender for guidance specific to your situation and local regulations. They can help you navigate the process effectively and ensure you make informed decisions.

I have lots of equity but the bank won't approve my finance...Why is this?

There could be several reasons why the bank is not approving your finance application despite having substantial equity. Here are some possible explanations:

1. Credit History: Your credit history plays a significant role in a bank's decision to approve a loan. If you have a history of late payments, defaults, or other negative marks on your credit report, it can make it challenging to secure financing.
2. Income and Affordability: Even if you have a lot of equity, the bank may be concerned about your ability to repay the loan. They typically assess your income and expenses to determine whether you can afford the loan payments.
3. Debt-to-Income Ratio: Banks use a debt-to-income ratio to assess your financial stability. If your existing debts are too high in relation to your income, it may raise concerns about your ability to manage additional debt.
4. Property Valuation: The bank may have a different valuation of your property than you do. If they believe your property is worth less than you claim, it can impact their willingness to lend against it.
5. Loan Purpose: The purpose of the loan can also affect approval. If you're seeking financing for a high-risk venture or an unusual project, the bank may be more cautious.
6. Lending Policies: Banks have their own lending policies and risk assessment criteria. Your application may not align with their specific requirements, even if you believe you meet general lending criteria.
7. Regulatory Changes: Banks operate under regulatory guidelines, and these guidelines can change over time. New regulations or changes in the banking industry could impact loan approval processes.
8. Documentation: Sometimes, a lack of proper documentation or errors in your application can lead to rejection. Make sure all your financial documents are in order and accurate.
9. Unstable Financial Situation: If your financial situation is unstable or uncertain, it can raise red flags for the bank. They want to ensure that borrowers have a stable source of income and financial security.
10. Bank-Specific Issues: It's also possible that there are issues specific to the bank itself, such as changes in their lending policies or internal issues that affect their ability to approve loans.

To address this situation, it's a good idea to contact your Mortgage advisor and ask for specific reasons for the rejection. You can work on improving those areas, whether it's improving your credit, reducing existing debt, providing additional documentation, or seeking financing from a different lender. In this situation, it's helpful to consult with a financial advisor who can provide guidance on how to enhance your eligibility for financing.

My credit score is poor due to an incident that occurred years ago...am I able to get a home loan?

In New Zealand, your ability to get a home loan with a poor credit score will depend on several factors, including the severity of your credit issues, the specific lender's policies, and your current financial situation. Here are some steps you can take to improve your chances of getting a home loan with a poor credit score:

1. Check Your Credit Report: Obtain a copy of your credit report from one or more of the credit reporting agencies in New Zealand, such as Equifax or Centrix. Review it carefully to ensure there are no errors or inaccuracies.
2. Address Outstanding Debts: If you have any outstanding debts, try to pay them off or negotiate with creditors to settle them. Reducing your existing debt can improve your credit score.
3. Build a Savings History: Saving for a deposit on your home and demonstrating financial responsibility can offset a poor credit history. Lenders may be more willing to work with you if you have a sizable deposit payment.
4. Find a Mortgage Advisor: Mortgage advisors are well-versed in working with various lenders and can help you find a lender that may be willing to work with your credit situation.
5. Consider Non-Bank Lenders: In some cases, non-bank lenders may be more flexible in lending to individuals with poor credit. Be aware that interest rates may be higher with non-bank lenders.
6. Document Your Finances: Be prepared to provide detailed financial information, such as bank statements, payslips, and IRD personal tax returns, to prove your ability to repay the loan.
7. Seek a Guarantor or Co-Borrower: If you have a family member with good credit, they may be willing to act as a guarantor or co-borrower, which can improve your chances of loan approval.
8. Improve Your Credit Score: Over time, work on rebuilding your credit by paying bills on time, reducing debt, and avoiding further negative marks on your credit report.
9. Be Patient: It may take some time to rebuild your credit and improve your financial situation. Be patient and persistent in your efforts.
10. Shop Around: Different lenders have different lending criteria. Don't be discouraged by one rejection; explore various lending options and see which one is the most accommodating for your situation.

While it's possible to obtain a home loan with a poor credit score, you may face higher interest rates and more stringent terms compared to those with better credit. It's essential to research your options, work on improving your credit, and consult with financial professionals to determine the best path forward for your specific situation.

What does the bank typically require for a live deal?

Typically the lender will request a valuation to be completed and often a building report depending on the type of property. There may be other conditions to your live deal that will be specific to your application.

Do banks lend to purchase a tiny home?

Banks in New Zealand, generally lend money to finance the purchase of homes, in some instance this does include tiny homes. However, the availability of financing for tiny homes may vary depending on several factors. Here are some things to consider:

1. Type of Tiny Home: Banks may be more willing to finance a tiny home if it meets certain standards and regulations. For example, a tiny home on wheels (THOW) might be considered more like a caravan or mobile home, and financing for these structures can be different from financing for traditional homes. When financing for a Tiny home the bank may lend against the land value only!
2. Location: The location of the tiny home could affect financing options. If it's on a piece of land you own, the bank may treat it differently than if it's on rented land or in a tiny home community.
3. Creditworthiness: Your credit history and financial situation will play a significant role in a bank's decision to lend to you. It's important to have a good credit score and financial stability.
4. Loan Amount: The size of the loan you need might also impact your financing options. Smaller loans can sometimes be more challenging to secure, as the bank may have minimum loan requirements.
5. Banks and Lenders: Different banks and lending institutions may have different policies and criteria for lending for tiny homes. It's a good idea to speak with a mortgage advisor to compare their offerings.
6. Regulations: Be aware of any local or national regulations that might impact the placement and financing of tiny homes.
7. Deposit: You will likely need to pay a deposit, and the amount required may vary from one lender to another.

It's essential to reach out to your Mortgage advisor to discuss your specific situation and get information about lenders policies regarding tiny homes. It always helpful to work with a mortgage advisor who can help you navigate the lending options available to you.

What are the costs for using a mortgage advisor?

In most cases, using a mortgage advisor is free to the customer as the advisor is remunerated by the bank upon drawdown of the loan. Some instances where the mortgage advisor may charge the customer a fee is if the customer decides to use a different mortgage advisor or go directly to the bank for their lending after their pre-approval has already been secured. Other instances where a fee may be charged as a on-off is if the following occurs:

1. There’s no commission: If you request that financial advice is provided, and the mortgage advisor does not receive a commission from the lender a one-off fee may be charged. Any such fee would be agreed and authorised by you in writing before the service was completed and would be based on an estimate of the time spent providing the advice.
2. Commission must be repaid: if you make certain changes to your loan, the lender can require the mortgage adviser to repay to them the commission the mortgage advisor received for your loan – this is called a ‘clawback’ and can be up to 100% of the commission. If this occurs, the mortgage advisor may charge you a one-off fee.
3. In the event that you use a mortgage advisory service and then instruct the mortgage advisor not to proceed with an approved application for the product being discussed, a one-off fee may be charged to cover the cost of the time.

If you have any other questions regarding your lending, please don't hesitate to get in touch or make an appointment.

Looking forward to hearing from you,

Fiona