A lot of the nerves that first home buyers feel when they decide to buy is around the mortgage. When the maximum loan you’ve ever applied for is a $2,000 Credit Card, getting a loan of $400,000 can be overwhelming.
Once all conditions are ticked are off, you have an “Unconditional Letter of Offer of Finance”. But let’s look at each stage of the process.
The first discussion with a broker will typically be over the phone. Your broker will walk through the basics of your scenario and talk about any obvious hurdles you might be facing. The two main hurdles that new first home buyers face is either not enough income or not enough deposit. Here’s an article we wrote on how much deposit you need to buy a home. Nothing is off the cards at this point and, no matter what, the broker will usually want more detailed information so they can workshop a solution to get you a mortgage.
Your broker will send you an e-mail invitation to our online application system. Follow the link in the email and begin entering your detail. Some things are required (for example, your name) but feel free to leave other information you may not know yet (for example, the profit from your business last year). The system automatically saves your information so if you get stuck or find it too hard, you can close the browser window at any time. You broker will check all this information when they meet you so don’t feel like this is your last chance to get everything right.
At the end of the application, the system will generate a list of documents based on your answers. It’s good to upload these if you can but you can also bring the documents to your meeting with the Broker so don’t panic if you don’t have them all.
The meeting with the broker is just an opportunity to fill in the blanks and make sure all info in the application is true and correct. It’s a good time to ask all the questions of the broker about the process. By the end of the meeting, the broker should be comfortable they understand your situation. And you should be comfortable that you know the next steps of applying for a mortgage.
It’s a good opportunity to show your IDs to the Broker who will need to sign them off as true and authentic for Anti-Money Laundering requirements.
If you are applying for a mortgage with your existing bank, you don’t technically need your bank statements (they can see them on their system after all) but it is worth having them on hand in case you don’t meet your current bank’s lending criteria and need to go to another bank. Your broker will always want to scan over these to make sure they line up with your application.
It is also very good for you to know and understand what is contained in those statements. Banks are currently going through mortgage applicant’s spending habits with a fine-tooth comb. There is some amazing software that easily categorises your expenses (I’m a fan of the NZ-made PocketSmith). Approaching the bank with your expenses categorised will tell the bank you are a person of good financial character.
Once your Broker is happy that they know all the details of the application, they will submit the application to the bank. This is sent to an assessment team whose job it is to make sure it meets that bank's criteria. The turn around time for this ranges from 2 days to more than a week. That will seem like forever when you're waiting to get a mortgage and it's important to tell your Broker if you suddenly have a deadline (like an auction or want to make an offer on a property).
Once the bank is happy with your application, they will issue a Letter of Offer. This lays out exactly how much you have been approved for. Your broker will be able to tell you whether this is the maximum amount you will be able to borrow or whether it is a nominal amount.
Often these letters will show a payment amount and it will seem to be much higher than you expect. The banks are required to show a payment amount so there are no nasty surprises later. They tend to use the non-discounted floating interest rate which is often their most expensive interest rate. Don't worry about this. When the time comes to lock in some interest rates, they will be lower than the floating rate.
The pre-approval will either be "conditional" meaning there is more information the bank needs or "unconditional" meaning the bank is happy to lend the money with the information that you have provided. Most brokers will try to get an unconditional offer as soon as possible so you can be comfortable making offers on properties.
Note: you will always need to show all the information for any property you want to purchase. For this reason, a good outcome is to get an unconditional offer that only has 1 requirement for more information on your future property.
If there are conditions on the Letter of Offer, the Broker will work to tick these off as soon as reasonable. It might be that the bank needs a bit more information on your employment, or for you to show that you have reduced a Credit Card limit. The sooner you can tick these off, the stronger you can make your offer when you find your dream property.
You've got your Letter of Offer and it's time to start seriously looking at properties. We recommend going to at least 20 Open Homes in the price bracket that you are pre-approved for. When you find that gem, the one that is going for an amazing price, you'll be able to make a confident offer. If you make an offer on the first home you go to, you can't be sure if you're paying too much!
When you find a property you are interested in, you will need to give the bank a copy of the blank Sale and Purchase Agreement. You will also need to tell the bank the maximum amount you are willing to purchase this property for.
The Sale and Purchase Agreement will have all the disclosures for the property on it and the bank can then make a decision as to whether it is an acceptable security. It's important to remember, no offer of finance is truly unconditional until the bank has approved the property.
Once your offer has been accepted on the property and you have confirmed you are happy to go unconditional on the offer (after talking to your Conveyancing Solicitor), it's time to finalise the mortgage. This will involve another meeting with your Broker (usually half an hour to an hour) to discuss how you want to divide the loans. This might be a mix of Revolving Credit accounts, Offset Accounts, and Fixed Term Loans. Your Broker will go through all of these options with you to make sure you understand what your mortgage will look like.
Congratulations! You've got a mortgage a new home!
If you feel like the whole process is overwhelming, keep calling your Broker. It is likely to be the biggest purchase of your life so it's fine to feel nervous. Your broker is there as much for emotional support as they are for financial advice!
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