More than one way to get a loan

If your finances aren't in the best shape, getting into your first home may be easier with help from a mortgage broker. PHOTO / GETTY IMAGES

Every day Kiwis are knocked back by mortgage lenders. Often, says Stuart Wills, mortgage broker at the Mortgage Supply Company, the client has wrongly assumed they qualify. Either the customer has run their own numbers through an online calculator or spoken to the bank a few months earlier and assumed that he or she is mortgage worthy.

Wills says the main reasons mortgage applications are knocked back are:

1. Too little deposit

Currently most private home buyers need a 20 per cent deposit and investors 40 per cent. Banks can lend a small amount of their "book" to buyers with smaller deposits. But it's hard to be one of the lucky ones.

Wills says often Kiwis have been told by the bank verbally that they should qualify, but by the time they apply, the Reserve Bank of New Zealand (RBNZ) has changed the rules or the bank's criteria has changed.

"The bank says: 'yeah we can do that', and then when it comes time to buy, the bank says 'we can't do that'."

Wills says there are exemptions from the minimum loan to value ratio (LVR) rules if the house is new, and for people who qualify for the Government's Welcome Home Loan scheme. Non-bank lenders such as finance companies are not restricted by the LVR rules.

Another trap for some buyers is that they fall in love with a "new" home being sold by an investor or homeowner who has bought land and hired a builder to do the work. The buyer expects the LVR rules don't apply because the home is "new". Such homes, however, falls outside of the RBNZ's "new home" definition. It is a bit of a grey area that catches some buyers out, says Wills.

2. Lack of income

Kiwis often use the banks' online calculators to check if they can afford a property. What they don't realise is that when the bank does the affordability numbers it uses a "test interest rate" of around 7 to 7.5 per cent to stress test borrowers to ensure they can pay in a worst-case scenario.

A mortgage broker may be able to find ways to "tweak" clients' income to pass the test, says Wills. That may include taking a temporary KiwiSaver holiday, or cutting costs.

One client had to be convinced to cut the childcare cost and get the non-working partner to do the job. That raised the family's disposable income to a level acceptable to the bank.

3. Residency requirements

Wills is seeing an increasing number of clients caught by changes to how Immigration New Zealand apply residency with travel restrictions. Because of changes, some banks are hesitant to lend to immigrants on Work to Residence visas until they've obtained their permanent residency.

This has hit a number of his clients from the United States, South Africa, the UK, and parts of continental Europe such as Hungary.

Some banks can, however, be convinced to take on these clients, says Wills.

4. Too much debt

Banks take a good look at borrowers' outside debt before offering a loan.

Often clients have consumer debt on credit cards, hire purchase, and car/personal loans, or are repaying debt to the Inland Revenue Department, says Wills.

Clients are sometimes surprised that banks take into account credit limits, not just the amount of outstanding debt on a credit card, even if the balance is paid off each month. Wills recommends clients pay off HPs and even student debt to make themselves more attractive to the bank.

Student debt is interest-free, but wiping it means they no longer have monthly repayment commitments which affect the amount they can borrow on a mortgage. Clients may also be declined due to their credit records with Veda, Dun & Bradstreet, or Centrix.

Home buyers who can't get a mortgage through their bank should try using a mortgage broker who has invariably seen the same problem before and can often get the loan over the line.

5. Probationary employment periods

Workers undergoing the 90 day trial or probationary periods may struggle to get mortgages. Banks treat Kiwis in this situation as if they're unemployed or casual workers because they have no guarantee of ongoing work. This one comes up regularly and Wills asks his clients to speak to their employer to see if the probationary period can be waived.

Casual workers can struggle and may need to get a permanent contract, says Wills.