When applying for a home loan it can be quite daunting, particularly if you have been declined by a lending institution before. It can sometimes be hard to know what lenders are looking for.
Most applications are assessed on a case by case basis, and each lending institution will have its own lending criteria based on how much risk they are prepared to take. However in general they will all look at the following;
- Good credit history – a good clean credit history/rating is important to lenders. Those with poor credit histories will find it harder to get home loans. If you’re unsure about what your credit history is you can check it out online at places like Credit Simple.
- Deposit amount – in general a 20% deposit is usually required however there are some lower deposit home loans available and those that qualify for a Welcome Home Loan will only need 10%. Lower deposit amounts can attract additional fees. Lenders may also have different deposit requirements for different types of properties (eg investment properties).
- Good savings / banking history – lenders want to see that you can save on a regular basis and live within your means. If your banking history has honour/dishonour fees each month or if you exceed your overdraft or credit card limit these could count against you.
- Ability to repay the loan – lenders want to see evidence that you have regular income coming in. However when assessing your ability to repay the loan they’ll also take into account your need to live and pay other expenses.
- Consumer debt – banks look more favourably on those who have little or no consumer debt so when applying for a loan its best to have as little debt as possible (HP’s, personal loans etc).
- The collateral – The collateral (ie the house/dwelling/land) must be acceptable to the lender. For example, houses that have significant ‘deferred maintenance’ (ie need a lot of work/repairs done to them) may cause a lender to look at how you will afford to make the necessary repairs.
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of NZHL (New Zealand Home Loans).