Getting into your own home sooner
Last October the Reserve Bank introduced new restrictions to stop high risk lending. Worried by the threat of high-risk lending practices (that is, loans granted with low deposits), the Reserve Bank saw these restrictions as a way to increase the stability of the financial system. The new restrictions mean those with a deposit of less than 20% can only make up 10% of a lenders book.
While it’s been noted by banks there’s been a drop in enquiries, customers are being reminded that all is definitely not lost. There are many ways to put yourself in a better position to get the right home loan for your needs. Here’s a reminder on some of the ways you can help get into your new home sooner.
All is not lost
Even if you don’t have a 20%, you may not necessarily be out of the game. Some limited products were excluded from the low equity quota, with borrowers requiring only a 10 per cent deposit, but you must meet house price and earning caps to qualify. They’re very limited and we can discuss if this is an option for you.
Save, save save
It’s a bit of an obvious one but the more you can save for your deposit the less of a ‘risk’ you are for lenders. You should aim to get as close to a 20% deposit as you can but don’t panic if this feels unachievable as we can discuss other options available to you. While banks are showing a drop in enquiries, they are still encouraging customers to apply. Even if you think the door is closed, still ask, as the door may still be open.
The way you build your home loan deposit also has a lot of merit. If you can show a consistent track record of employment and a history of regular savings in your bank account it will make it easier for you to get loan approval. If you can also show how much rent you currently pay each week whilst you have been saving that will assist because it demonstrates your ability to make similar mortgage repayments.
Zap bad credit
Your spending habits in recent years, payment history and open credit cards all impact on your borrowing capacity. This means that any active credit cards you have are tallied in your assessment – even ones that you don’t ever use and have no balance on. Department store credit cards are also included, so it’s important that you be careful what you sign on for and keep close track of any loose ends.
Cancel any cards you don’t use and review your balance limits and reduce them if you can. If we look at the ideal situation again, you should attempt to pay off any remaining credit balances and existing personal loans.
If it’s beyond your means to pay off your debts in the near future you should set up a budget to show your commitment to paying it off. Putting aside a set amount each payday will help you to methodically pay off your debt and give you a nice record of making regular payments to show to your lender.
Be nice to Mum and Dad
Another way to reduce your risk in the eye of the lender is to get some security from Mum and Dad. Many lenders will allow you to borrow against the equity in the property of an immediate family member or their savings to help you reach your deposit.
The way this works is that if you had a 10% deposit, your parents could be guarantors for 10% of the loan value to make up the 20%. In many cases your parents exposure can be limited to this portion (in this example 10%) with no liability attached to the remaining 90% of the loan. This allows family to assist you get into your first home without having to contribute large cash gifts.
If you have any questions or concerns about purchasing property don’t hesitate to get in touch.Tags: property, Reserve Bank of New Zealand, risk lending, Savings