What information do I need to apply for a mortgage?
Buying a house can be exciting and daunting at the same time. As the biggest purchase and financial decision for most people it also comes with a pile of paperwork.
While this can be off-putting it also needs to be put into perspective. Buying a home means borrowing a large sum of money from a lender who has to be confident you can pay it back, usually over a period of 20-30 years. So evidence showing you can do this, and you are responsible, is essential to build trust and seal the deal.
By the time you reach the mortgage application stage you will have a deposit, and if you are further down the track, you may also have a specific house in mind, or even made an offer.
So to make sure the application process is smooth and swift, the most important thing to remember is to start collecting this information early. A good idea is to have a file or box for the documents and even create a checklist to tick off as you gather them together.
Also make sure you have all the information you need before applying. Remember, an organised borrower makes a lender’s job easier and if anything’s missing it will just make the process longer.
Here is a quick list of the information you will need to apply for a home loan:
- Proof of name and address
- Proof of income
- Proof of your deposit and any other savings
- Details about regular expenses
- Information about debt and regular loan payments
Below we go through each of these in more detail.
Proof of name and address
You will need at least one proof of identity for each person applying for the mortgage; a current passport or driver’s licence is the usual document provided. Bring the original along with your application for the broker or lender to check and photocopy.
If using a passport, it can be current or expired within the last two years but mustn’t be cancelled or damaged. You can use either a New Zealand passport or one from overseas, if you are not a citizen.
An NZ Driver Licence can also be used but legally these are required to be electronically verified, which can take time.
There are also a few other documents that can be used such as a NZ Firearms Licence, Birth Certificate or Citizenship Certificate.
You also need to prove your address and while there are a variety of documents you can use, a utility bill from the last three months is the most common.
Other documents to use include: a statement or correspondence from a financial institution like your bank, a property sale and purchase agreement, an insurance policy document, correspondence from a Government Agency containing your name, address and unique reference such as IRD number, or an unexpired rental or tenancy agreement.
Once again bring originals with your application.
These documents may sound basic but they are important as all financial institutions have to comply with the Anti-Money Laundering and Countering Financing of Terrorism Act (2009).
Proof of income
This is the all-important information about the money coming in for you and anyone else applying for the mortgage, such as your partner, husband, wife or friend.
To do this you will need last three salary slips, or bank statements supported by a letter from your employer confirming your income, and don’t forget any overtime, commission payments or income from investments such as shares – it all helps!
If you are self-employed you will need to have proof of at least two year’s trading, provided by your accountant or as shown by your recent income assessment from the IRD.
Details about your deposit and other savings
A statement from your savings account or investment statement will do the trick, along with your bank statements. Keep in mind that some lenders also like to see evidence you’ve saved this money yourself – the best way to do this is to provide bank accounts showing you have transferred money from a current account to a savings account.
If you have other sources of money for your deposit, for instance from a family member or friend, you will need to provide evidence of this supported by a letter from the person who has committed to lending you the money. This person, who is called a guarantor, will also need to understand their role and responsibilities as a provider of funds, including clarifying their personal financial position.
A deposit can also include “gifted funds”. These do not need to be repaid and are a very common form of deposit, especially for first home buyers in a market where house prices are high. These are often used by parents to help their kids get on the housing ladder.
Details about regular expenses
A lender will need to have a good idea about your monthly expenses and at least three months’ of bank statements will provide this. Remember to do this for anyone applying for a mortgage, whether you have separate or joint accounts.
Regular expenses will include:
- Gas and electricity
- Mobile, phone, data and internet
- Transport – car and fuel
- Rent and rates
- School fees
To be super-efficient you could provide a summary of the last three months’ expenses in each of these areas.
Information about debt and regular loan repayments
The lender will also look at your debt including statements related to hire purchases, leases, regular loan repayments and credit cards.
Hire purchases could be for any household items or technology, leases could be for cars or white ware, you could have an existing mortgage or other loan, and then there’s regular credit card debt.
Liabilities from debt counter-balance any savings, so it’s always a good idea to reduce debt as much as possible before applying for a mortgage. Doing this and showing you’re focused also shows a lender you are responsible and good with money.
Have you already made an offer on a house?
If you’re already further along and have made an offer on a house, you will need to provide the lender details about the house and Sale and Purchase Agreement, as well as a copy of the valuation from a registered valuer.
Making an offer first and then finding a mortgage is sometimes not the best way of going about things. The reason is that lenders can be very particular about the house and its location, before agreeing to a mortgage. The last thing you want is to find the house of your dreams only to discover a problem when it comes to finding a suitable mortgage. The best advice is to speak to a mortgage expert first.
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There is a lot of information to collect so when it comes to telling your whole financial story it’s better to include more information, not less.
One of the best ways to be successful when applying for a mortgage is to start planning early and show the lender you will be a good borrower. After all, borrowing money for a home is a very long term business transaction.
But most importantly of all, having a trusting and supportive relationship with an advisor and lender will get you into your first, second or third home.
It will also help you get on the road home ownership as a key foundation to your future financial security.
Posted 1 May 2017