Are you mortgage ready?

Five things that will help you prepare for a successful mortgage application.

1. Check Your Credit Score.

Your credit score provides banks with valuable insights into how you manage your debts.  A clean credit history increases your chances of a successful application as it demonstrates responsible borrowing behaviour.

Before applying for a home loan, obtain a copy of your credit file to check for any negative marks that could impact your application.

The most popular sites to do this are Centrix, Equifax, or ClearScore. Maintaining a good credit score requires responsible financial habits, such as paying bills on time, keeping within your credit card limit and avoiding excessive borrowing.

By managing your credit, you can show the bank that you are a good payer.

2. How Is Your Bank Account Looking?

Good account conduct is essential when applying for a home loan.

The banks will want to look at the last 3 months’ worth of your bank account statements to make sure you are managing your money responsibly.

If you go into overdraft on your accounts regularly this can be seen as a negative so you will need to watch this closely. Furthermore, if you go into an unarranged overdraft on a regular basis this is a definite “red flag”, so make sure you keep your accounts looking good at least 3 months prior to applying for a home loan.

3. Clear The Debt Decks.

Having outstanding short term debts, such as credit cards, BNPL (Buy Now Pay Later) or personal loans, can definitely impact your borrowing eligibility.

Before applying for a home loan, it's beneficial to try and pay off any existing debts.

Prioritise paying off high-interest debt first to minimise your ongoing interest charges which will help to free up more funds to pay down your other debt or boost your deposit.

4. Do You Really Need That Massive Credit Card Limit?

When the banks assess your home loan application, they take into account your credit card limits, not just the balance you have owing.

If you have unused credit card limits, consider reducing or eliminating them altogether.

While it may seem counterintuitive, reducing your credit card limit can actually improve your borrowing power.

Lenders will take into account the minimum monthly payments (usually around 3%) based on your credit card limit, so a lower limit means a lower minimum payment assumption when they are running their calculations.

5. Talk to a Mortgage Adviser Upfront

The best time to involve a Mortgage Adviser is the moment you decide that you are going to buy your own home.

Working closely with a Mortgage Adviser will also enable you to put your best foot forward when applying for a home loan and navigate the lending landscape, saving you a lot of hassle, so reach out if you need a hand!

Stephen Massey – Mortgage Advisor and First Home Specialist, Call 021 711 444, www.loanmarket.co.nz/stephen-massey