How To Get A Mortgage In New Zealand: The Beginner’s Guide

Arguably the easiest way to pay for a home is by getting a mortgage. Most of the property's cost is shouldered by the bank or mortgage company, and divides it into monthly repayments over a certain period. Getting the right loan is key as it could last you up to 30 years to repay it.  For beginners, taking out a mortgage can be very intimidating. You have to deal with several factors such as location and budget, as well as unfamiliar terms like principal, interest, deposit, and more.

To top it off, there are over 200+ loans from different lending institutions in New Zealand, making it extra difficult to find the right mortgage plan for you.

We’re here to help you find the right mortgage plan that meets your budget, income, and financial goals.

Read: Best Real Estate Agencies In New Zealand

When is the right time to apply?

When you’re ready to buy your own home, that's when you can start looking for the right mortgage offer for you. Get the most competitive interest rates, fees, payment terms, and loan terms by using a mortgage calculator for a personalised quote.

You don't need to have millions of cash in your bank account to buy a home. You'll find that there's a lot of mortgage loan options to match every financial situation, including the ones from low-income and single-income households.

Of course, that’s not to say that you don’t need to prepare for a mortgage plan. Before taking out a loan, it’s smart to prepare yourself for this long-term commitment. Here are some quick and easy tips for you:

Get your credit report 

You already know this: how much you can borrow and your interest rate will be based on your credit score. It shows your credit history including credit cards, utilities, and other loans. It can be accessed for free through credit reference agencies like Equifax, illion, and Credit Simple.

You may also want to check the defaults under your name. If the details are incorrect, prepare at least 3-4 weeks ahead to get them corrected. Most of all, pay overdue debts that lower your credit score.

See if you’re eligible for KiwiSaver

It's worth checking to see if you’re eligible for a KiwiSaver withdrawal. The requirements and specifications are simple:

• You’ve been contributing to KiwiSaver for at least 3 years
• You’re purchasing a house for the first time and you intend to live in it full time
• No income cap is required for a KiwiSaver first-home withdrawal
• You’re allowed to withdraw all your funds, given that you keep at least $1,000
• You and your partner can use your combined savings to purchase your first home

Talk to your provider for any inquiries regarding your KiwiSaver first home withdrawal. You may also check if you're eligible for First Home Grant and First Home Loans, which can significantly lower your deposit and increase your borrowings.

Look for other streams of income

Take on freelance projects in your free time. Whatever it is, it’s wise to start more streams of income before taking out any loan. 

If you’ve been serving the company for a long time and have exceeded expectations, you may want to request a salary increase. An additional $3,000 per year may seem like a small difference, but this can enable you to purchase a house worth $50,000 more. This can affect the location and size of the home that you can purchase.

What documents do you need to apply for a mortgage?

The requirements vary depending on where you get the mortgage plan. Usually, these requirements can be categorised into three: personal documents from home, proof that you can pay the mortgage, and your assets such as income and investments.

Documents from home:

• Passport/Visa/Citizenship Certificate
• Drivers License
• Marriage Certificate
• Birth Certificate

Proof that you can pay:

• Your two most recent payslips
• Copy of employment contract and/or a letter from your employer
• Most recent IRB (Inland Revenue Business) Tax Statement
• If self-employed, the last two year’s full tax returns
• WINZ (Work and Income New Zealand) Statements
• Proof of existing rental income
• Proof of proposed rental income
• Most recent statement for all credit cards, personal loans, leases etc
• Copy of loan statements for 6 months on any existing mortgages

Assets:

• Most recent statement for all savings accounts
• Copy of share certificates etc.
• Copy of sale contact on an existing home or settlement letter from your solicitor if the deposit it to come from the sale of an existing home
• Statutory declaration if any part of the deposit is a gift, stating it is non-repayable
• Rates notice on any existing properties
• Copy of contract of sale for property being purchased
• Home Insurance certificate for all properties owned
• Copy of plans, specifications and fixed-price contract for any construction
• A cheque for establishment fees if required

Note that some companies may require more or less, depending on your circumstances. Talk to your bank or mortgage lender for the complete list of requirements that works best for you.

How to apply for a mortgage in NZ

There are two common ways to apply for your mortgage: either choose to meet with a mortgage broker, or talk to the bank directly. Each one has its own pros and cons.

Getting a mortgage through a broker

A mortgage broker, also called a mortgage adviser, serves as the middleman between you and the lending institution. All brokers in New Zealand are regulated by the Financial Markets Authority, and usually have affiliations with banks and financial institutions. According to industry estimates, about 40% of mortgages in New Zealand are processed through a broker.

Pros:

• They’re free! You don’t have to pay a fee, as they usually receive a commission from the banks’ margin once they successfully close a deal.
• They can help you with paperwork — from sorting out your credit report, processing the necessary documents, and more.
• They can negotiate with the bank or the lending institution about the amount you can borrow, deposit, interest, and more. As they understand the application criteria, they can even contest your application when you get rejected.

Cons:

• Your options may not be as comprehensive as they may favour deals from specific lenders more than others. After all, they’re paid by the lenders. 
• There may be costs involved if you don’t pick one of their options. Although very unlikely, they may charge extra fees, too.
• They may insist on their wants, rather than what you want. You need to find a good broker that considers your wants but also works out the best deals for you.

How to apply for a mortgage through a broker

1. Talk to a professional broker - Set a phone or online meeting to discuss your options. They may also send you an application where you have to submit your basic information and necessary documents.
2. Meet with the broker - After setting your expectations through a phone or online meeting, a face-to-face meeting is set to fill in more details on your application. This is the perfect time to ask for the best deals available for you.
3. The broker submits your application - Once the broker has finalised all the necessary documents from your end, they’ll submit your application to the bank. The assessment period ranges between 2 days to 2 weeks. 
4. The Letter of Offer is released - This specifies how much the complete terms and conditions of your loan are. This also states whether you’re approved or rejected. There are two conditions of approval:
• Conditional - A conditional approval means the lender needs more information or more documentation to fully approve your loan.
• Unconditional - An unconditional approval means the bank is satisfied with the documents and information that you’ve given. Do note that almost all offers are conditional unless the bank has approved the property.
5. Meet the conditions of your application - If the bank issues a conditional approval, the broker will work to fill out these gaps. If your only condition is to submit a copy of the Sale and Purchase Agreement of the property, then start house hunting.
6. The broker discusses your loan structure - Once the broker has sorted out the conditions set by the bank, you’re now approved for the loan. All that’s left is to let you know the structure — repayments, interest rates, term type, and more.

Going directly to a bank

Going straight to the bank is a more straightforward option. If your credit report doesn’t show complicated records of debt, overdue payments, or income streams, this is likely to be the best option for you. However, if you have huge debts, have a low credit score, and have been finding it difficult to sort out your finances, then you may be better off arranging your loan with a broker.

Pros: 

• You can find a variety of deals, as NZ banks offer varied mortgage plans to match the needs of every Kiwi. Whether you’re looking for a low-deposit or revolving credit home loan, they have something for everyone.
• Take advantage of their exclusive promos, as you take out a loan directly from the bank, you may be offered exclusive promos, deals, and discounts. This can lower your monthly repayments significantly.
• Negotiating with the bank means you can discuss your needs and wants yourself. Having no middleman is great, especially if you’re certain about your financial needs.

Cons: 

• If you’re a bad payer, having a broker may be a better option for you. Having a bad credit score is one of the biggest causes of rejected applications.

How to apply for a mortgage through the bank

1. Fill out an online application form - You don’t have to go through all the processes of talking to a broker. You can fill out the online application form, which should take anywhere from 5-10 minutes. If you prefer to fill out a physical form, go to the bank, bringing your requirements.
2. Get conditional or pre-approval - After filling out the form, you can get conditional approval within a minute to 14 business days. If you’re applying to a branch, you can get pre-approval right away. As mentioned, you have to meet all the conditions or additional documentation that the bank requests.
3. Start hunting for your dream home - If you’ve met all the conditions of the bank, you can start house hunting, based on your loan amount. When looking for properties, don’t look only for just one home. This way, you always have a backup when the bank doesn’t approve your loan for the property. 
4. Get unconditional approval - Similarly, submit a copy of the Sale and Purchase Agreement of the property to get unconditional approval. They may also require additional property valuation. Once the offer is finalised, you just need to sign the documents and have them notarised.

How can you find the right property for you?

Finding the right property is crucial when you’re finally approved conditionally. This determines whether you get approved unconditionally or rejected ultimately. The great thing about having a pre-approved loan is, your budget is set. As the bank has specified the amount that you can borrow, it’s easier to determine whether a property is the right fit for you.

Avoid these common mistakes when house hunting.

Not shopping hard enough

For most Kiwis, one of the biggest mistakes is not shopping around. They only go through one or two properties, and then call it done. New Zealand has a very competitive real estate market. There may be ‘steal’ properties that you’re missing out on because you’re rushing to finalise your loan and purchase a property.

As a rule of thumb, it’s best to look for at least 20 properties. If you’re not rushing, try looking for more. The more options to choose from, the better. This way, you have better chances of approval when you finalise the properties with the bank.

Having a short-sighted vision

A lot of homebuyers see only what’s in front of them; they don’t see things for the long term. Even if the house is within budget, a lot of people would reject a property because it has imperfections or slight damages. After all, you’re bound to fix or alter it if you are to personalise your house.

Of course, it’s also not wise to pick a house that has been in a state of disrepair. To know whether the house is worth considering, check the essential parts of a house, including:

• Roofing
• Wastewater management
• Pressure and quality of water
• Electrical wiring, and circuit breakers
• Wall conditions

When these parts are damaged or faulty, it takes a lot of money to get them repaired. It may not be worth considering them, even if they’re in a prime location.

Not considering the neighbourhood

Don’t simply focus on your place of residence. Check what’s happening in the surrounding area too. Asking these questions may help.

• Are there grocery stores, schools, playgrounds, hospitals, transportation hubs, and other important amenities near the home?
• Are there development plans that may affect your quality of life in the future? Could be an airport, seaport, train, or subway systems?
• What’s likely to be developed in empty lots near your home? Is it for commercial space or residential areas?
• What’s the trend of housing prices in your neighbourhood? Has it been declining or rising in the last few years?

Dragging your decision for too long

Of course, making a careful decision is important but make sure to balance it as well. House hunting can be extremely time-consuming and physically draining. Set realistic expectations by doing your assignment. Research accordingly so you can make firm decisions.

On the other hand, don’t settle for less. The cost of settling in a house that you’ll end up hating is more expensive than the loan itself. Don’t rush things and weigh your options accordingly. What’s worth the wait is always worth having.

Not using a comparison website

Remember that conditional approval isn’t the conclusion. Most lending institutions offer a timeframe where you can back out if you don’t find the terms of your plan amenable. As mentioned, don’t settle for less. Always make sure that the terms are according to your needs.

Before settling for anything, always shop for the best deals. Use our free mortgage comparison tool, right here at glimp. We keep our information up-to-date so you can always get the right deal for you. What’s more, we offer exclusive promos and deals that you can’t find elsewhere — even on the lender’s website.

Compare your best mortgage plans here at glimp!