Get your finances ready

Getting your finances sorted is the most important first step on your home buying journey. It’s the foundation that allows you to understand your budget, get pre-approved for a loan, and search for a property with confidence. This guide breaks down exactly what lenders look for and what you can do to prepare.

What lenders look for: the three pillars of your application

When you apply for a home loan, banks and other lenders will focus on three key areas to assess your application. Understanding these pillars helps you prepare a strong case.

1. Your deposit (Loan-to-Value Ratio)

Your deposit is the amount of money you contribute to the purchase price. Most banks in New Zealand prefer to see a deposit of at least 20% of the property’s value. However, don’t be discouraged if you’re not there yet. There are several ways to build your deposit:

Personal savings: The money you have saved yourself is the most straightforward part of your deposit.
KiwiSaver first-home withdrawal: If you’ve been a KiwiSaver member for at least three years, you can likely withdraw most of your balance to put towards your first home. You just need to leave a minimum of $1,000 in your account.
A gift from family: Many first-home buyers receive help from family. A gift can form part of your deposit, but your lender will likely ask for a signed declaration confirming it’s a gift, not a loan.
First Home Loan: This is a great option for those with a smaller deposit. Supported by Kāinga Ora, a First Home Loan allows eligible buyers to purchase a home with as little as a 5% deposit. Income caps and other criteria apply.

2. Your affordability and spending habits

A lender needs to be confident that you can comfortably afford your mortgage repayments. They will closely review your income, debts, and your spending habits over the last three months of bank statements. They are looking for evidence of responsible money management.

Simple steps to improve your affordability:

Create a clear budget: Track your income and expenses so you know exactly where your money is going. This shows you’re in control of your finances.
Reduce discretionary spending: For the three months before you apply, try to cut back on non-essential spending like daily coffees, takeaways, subscriptions you don’t use, and online shopping.
Pay down high-interest debt: Focus on clearing any outstanding balances on credit cards, personal loans, car loans, and ‘buy now, pay later’ services. The less debt you have, the more income you have available for mortgage repayments.

3. Your credit history

Your credit score is a summary of your financial history that shows lenders how reliable you are at paying your bills and repaying debt. A healthy credit score is crucial for getting your home loan approved.

How to keep your credit score in good shape:

Always pay your bills on time: This includes everything from your power and phone bills to credit card and loan repayments.
Avoid applying for new credit: In the months leading up to your home loan application, try to avoid applying for new credit cards or personal loans, as each application can temporarily lower your score.
Check your credit report: You can get a free copy of your credit report from New Zealand credit reporting agencies like Centrix, Equifax, or illion. Check it for any errors and get them corrected.

Get the green light with mortgage pre-approval

Mortgage pre-approval (also known as conditional approval) is a conditional offer from a lender stating how much they are willing to lend you. It’s your green light for house hunting and one of the most powerful tools you can have as a buyer.

Why pre-approval is a game-changer:

You know your exact budget: It removes the guesswork and allows you to search for properties in a realistic price range.
You become a serious buyer: It shows real estate agents and sellers that you are ready and able to make an offer.
You can move with confidence: When you find the right property, you can make an offer quickly, which is a huge advantage in a competitive market. Pre-approval in New Zealand typically lasts for 90 days.

Choosing the right home loan structure

You don’t need to be an expert, but it helps to know the basic home loan types so you can have a confident conversation with your lender or mortgage adviser.

Fixed rate: Your interest rate and repayments are locked in for a set period (usually between six months and five years). This provides certainty and makes budgeting easy.
Floating rate (or variable): Your interest rate moves with the market, so your repayments can go up or down. This type of loan offers more flexibility, allowing you to make extra payments without penalty.
A combination of both: Many homeowners choose to split their loan, fixing a portion for certainty and leaving the rest on a floating rate for flexibility.

Talk to an expert

Navigating the world of mortgages can feel complex. A mortgage adviser can be a valuable partner in this process. They work with a wide range of lenders and can help you find the right loan for your specific situation, prepare a strong application, and guide you through every step.