Buying a house in 2022: 7 ways to prepare

7 tips for maximising your home loan application

For many people, a new year brings new goals – you might even be looking to buy your first home. The world’s dealing with a lot right now, and it’s affecting the housing market. But, if you want to buy a house next year, there’s one thing that hasn’t changed:

The better your serviceability, the greater chance you have of getting a mortgage.

The less debt you have and the leaner your expenses, the more likely you’re able to meet monthly home loan repayments. Other things come into consideration, such as your deposit and how much you earn, but here are our top tips for improving your serviceability in 2022.

1. Prove job security

Lenders have always needed to see that your income is stable. That means proof of income like payslips for at least 3 weeks to 3 months. If you’ve recently changed jobs or plan on switching your career in the new year, you might need to get past your 90-day trial period if it is there in your new employment agreement before you have the paperwork you need.

2. Check your KiwiSaver provided you have completed at least three years

If you’re banking on using your KiwiSaver for a house deposit, check with your provider how much you’re able to withdraw. Usually, you can withdraw most of your funds for a first home, minus $1000. You may also be eligible for a first home or new-build grant. Talk to your provider to see if you qualify.

It’s also a good time to revisit your KiwiSaver portfolio – there might be some adjustments you can make to get the most out of what you have saved.

3. 5% genuine savings

Recently, it’s been more difficult for borrowers with smaller deposits to get a mortgage, with stricter service criteria and new responsible lending rules limiting access to low-deposit lending. That being said, there are lots of ways to get a deposit together.

Banks prefer to see that you’ve been able to save at least 5% of the total house price – this is referred to as ‘genuine savings’. It’s their way of ensuring you’re capable of saving. That means, if you’re buying a house for $1,000,000, you need to have saved at least $50,000 on your own. However, the rest (likely around 5-15% depending on the deposit needed) can be gifted by a parent or supplemented with KiwiSaver or selling your any assets or oversees deposits.

4. Improve your credit rating

Do your due diligence before the bank does theirs. Start by checking your credit rating online, and if it’s lower than expected, find out why and work to improve it. Credit scores are based on how well you repay debt, so if you’re constantly paying late, or worse, defaulting on repayments, this will make your score much less appealing to lenders.

5. Save more than the deposit

In general, lenders require a deposit of 20%. If you are buying a newly build house then lenders are comfortable with less than 20% deposits such as 10 to 15% of purchase price.

6. Clean up your bank account

From December 1, 2021, new laws were introduced by the CCCFA to further ensure lenders act responsibly when giving out large loans. They aim to protect you – the borrower – but it means that banks will be looking more closely than ever at your spending habits.

Avoid frivolous spending as much as you can (think more home-cooked meals and fewer takeaways). That doesn’t mean you have to live like a Scrooge – just be more mindful of your spending. Set yourself a goal of six months, clean up your accounts and show the bank that you know how to save.

7. Buy now, pay later?

It’s important to be aware of just how strongly the likes of Afterpay and Laybuy can influence your mortgage application. Even if you hold one of these accounts without using it, banks will still see it as a liability – just like credit cards and hire purchase agreements. So, while you’re preparing to apply for your home loan, consider closing unused accounts to help make your application look even better.

Building for your future!

Buying your dream home in 2022 can be done, and a little time, effort and a few mindful changes will put you in good favour with the banks. It’s time to demonstrate that you can manage your finances – get rid of your debt, improve your credit score and save, save, save. With the help of an expert mortgage broker, you’ll be laying the foundations for a healthy financial future in no time.

For further expert advice on how to budget and save for your first home, call the team at Global Finance 09 555500

**These are general guidelines and are by no means a reflection of bank or lending policies