Getting mortgage pre-approval from a bank can be challenge for which many first-home buyers are unprepared. While most Kiwis fixate on the deposit as the biggest hurdle to owning a home, that's only part of the story. You may have a big whack of money in your savings account but banks may limit the amount they are prepared to lend you or decide you are too much of a risk.
Just like some people have a list of "must-haves" for the people they date, so banks have an increasingly long list of criteria for anyone they’ll commit to. If you don’t fit into their tick boxes, you’ll find it difficult.
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But there’s a silver lining here. Just like before you head out on a date, if you slap on some bank-friendly makeup, you can turn yourself into their ideal suitor.
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First up, get rid of as much other debt as you can. Even get rid of debt that you’re not using right now, like an unused credit card.
The bank wants to think it’s your one and only, or at least, that you’re not seeing anyone else too seriously.
It doesn’t want you to have multiple side pieces. So if you have a small debt you can pay off quickly, get it off the books.
The bank doesn’t even like you having the option for more debt. This is what’s called your “credit potential”.
So if you have a credit card with a high limit, consider bringing the limit down, or cancelling it entirely. Show the bank you’re serious about committing to them.
Speaking of commitment, the bank wants to know you’re a reliable partner, ready to stick by them in good times and in bad.
So while we have historically low mortgage rates right now, the bank isn’t going to run the numbers based on that. They’re going to see if you could still make the payments if interest rates went up to seven per cent.
It’s easy enough to check for yourself. Just google “mortgage calculator”, and put the numbers in to see how much you would be paying. Could you afford that? The banks needs the answer to be "yes".
Not the most romantic of traits, but the bank wants to think you’re the sensible sort. They’re likely to go back through three months of bank statements, looking for "unreasonable spending".
Of courses, every relationship can benefit from the right amount of mystery. Just go to a cash system for your day-to-day small spending on coffee, or a couple of beers after work.
Withdraw your budget at the start of the week, spend cash, and relax in the knowledge that you’re not being tracked.
If the bank asks about it, just tell them you’re being a smart budgeter who sets a limit each week and works in cash to make sure you stick to it.
Lastly, most partners like you to look to the future, and show you’re willing to progress the relationship.
So bonus points if you set up an automatic payment into your savings account, weekly or fortnightly, to show how restrained you are with your cash.
As anyone will tell you, sometimes your date looks good on paper, but you need to feel that spark too.
These are the little things that could make your bank think you’re a match made in heaven.
- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser.
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