Pre-approval: The three things banks are looking for

When you partner with the Du Val Group, you gain access to a network of property professionals working on your behalf. Ruan from Mortgage Lab is one of these people. He specialises in helping home buyers and investors establish strong financial strategies by assessing your finances and representing you when it comes to dealing with lenders.

Gaining lending for your new home or investment can be daunting without an experienced representative on your team. On top of this, there are many creative ways of gaining lending that the average buyer may not be aware of. This is why it’s important to have someone like Ruan on your team. Not only is he able to give you a realistic idea of your financial capability, he’s also able to leverage lenders against each other to ensure you get the best result.

When you decide to get on the ladder or continue your property portfolio, here are three things Ruan from Mortgage Lab says to think about as you prepare yourself for lending.

B - Borrowing Power

Borrowing Power is key to any property purchase.
The banks will assess your maximum home loan limits and provide a Preapproval Letter of Offer.

Preapprovals are your license to engage in the property buying process. They allow you to:

  1. Make an offer to purchase a property (at auction or on paper)
  2. Have confidence to know you can proceed with your plans
  3. Participate in the market and buy property

In your initial consultation with Du Val Group, it pays work with Ruan to find out what your borrowing power is, so you know what you’re capable of purchasing or working towards.

I - Income
The general Home Lending rule is that you can borrow 5 times the income you’re using to service the loan. Banks typically look for consistency of earnings, i.e.

a) Single Income of $100,000, your home loan could be at least $500,000
b) Couple with a joint household income of $100,000, your home loan could be at least $500,000

Salary or Wages as well as contract, commission, bonus, overtime, W&I allowances tax credits and benefits are all acceptable forms of income.

Self-employed: If you are self-employed, producing a financial statement from the past year and/or IR4s (IRD Tax Summaries) from recent years’ puts you in good stead to get home lending from the banks.

For newly self-employed people, 6 months GST returns accompanied with 6-12 month business bank statements can be assessed by banks and alternative lenders.

Ruan will help you stress test your specific income to borrowing power ability to help you understand what you are capable of.

D - Debt
Good Debt and Bad Debt

Consumer Finance (Credit Cards, Hire Purchases, Interest Free purchase schemes, Overdrafts, Personal Loans, Car Loans) aren’t always BAD, but they invariably limit your Home loan borrowing power. Minimising these will give you more power when approaching lenders.

Du Val and Mortgage Lab promote reducing your home loans as quickly as possible, especially during today’s historically low interest rates. Making headway on paying down home loans while rates are low makes sense and allows you to build equity faster so you can continue on with your property investment journey.

Good debt is debt that returns you more dollars than it costs. Investors understand this. To enhance your long-term financial strategy, you should also stay aware about how to use good debt, and in conjunction with your Accountant and Mortgage Adviser understand the structure and limits that best suit your situation.

Understanding how home loans work and gaining expertise on managing your existing home loans will save you valuable time and money in the long-run. So, enhance your property journey and book an appointment with our team today.