The amount you can borrow for a home depends on two main factors: how much you can afford to repay based on your current income, and the lender’s evaluation of how much they are willing to lend for a particular property. Lenders assess your ability to keep up with repayments while leaving enough for living expenses, though their methods for calculating this may vary.
It’s generally suggested that fixed payments, including mortgage repayments and other loans, should take up no more than 30–40% of your gross income. By calculating your total income and subtracting existing fixed payments, you can estimate how much a lender might allow you to repay each month. From there, you can explore different loan amounts to see what fits within that repayment range.
One key factor to consider is the possibility of interest rate changes. Even a small increase in interest rates could raise your mortgage repayments significantly. It’s important to plan ahead and understand how rate fluctuations might impact your ability to keep up with payments over time. If you’re unsure about how much this could affect your mortgage, using tools like a mortgage calculator can help. These calculators allow you to see how your repayments would change if interest rates were to rise by 1%, 2%, or more.
Many lenders also offer their own online calculators, which can give a rough estimate of how much they might be willing to lend based on basic information. However, these calculators often don’t account for your complete financial picture, such as other debts or obligations. For a more accurate assessment, it’s a good idea to contact a bank or mortgage broker directly, as they can provide more personalized guidance based on your full financial situation.
Each month, lenders often expect a minimum surplus, known as Uncommitted Monthly Income (UMI), to ensure you can comfortably manage mortgage repayments and still cover living expenses. UMI requirements vary between banks, and for couples, calculations are based on combined income. If you have children or are borrowing a larger portion of the home’s value, lenders will expect a higher surplus to manage risks like rising interest rates or reduced income. For instance, borrowing 95% may require a UMI of $750–$1,000 per month.
Some lenders will count 70-80% of a flatmates rent towards your income, although it does vary between banks.
The easiest way to find out how much you can borrow is to get a preapproval. We select which lender we think is going to be most favourable based on your situation and provide them with your income and spending details and ask them to confirm the calculation.
Based on the details you give them, a lender may give ‘pre-approval’ of the amount they are willing to lend.
Most lenders will lend up to 80% of the value or price of a house. This is called the ‘loan to value’ ration or ‘LVR’.
It is possible to borrow up to 95% of a property’s value in some cases, particularly for first home buyers. IF you borrow over 80%, a lender is likely to add a low-equity premium or additional ‘margin’ added to the interest rate.
Most lenders will want you to have a cash deposit to put towards your home. People are usually more committed to keeping up repayments on a loan if some of their own money is invested in the property from the start.
Whether the cash is money saved, from KiwiSaver, or a gift from a family member doesn’t matter to most lenders.
Most won’t accept deposits raised through loans. This would raise your financial commitments and make it tougher for you to meet all your payments.
If you are borrowing 95% of the property’s value, a bank is likely to want to see the deposit as being saved, not received as a gift.
You may be eligible for government help through Kianga Ora, and we can factor this in.
Lenders will consider your credit history – if you’ve had missed hire purchase payments or unpaid power fills, this might be recorded on your credit report. Where you have a poor credit score, most banks will either decline a loan, or reduce the amount they are willing to lend. There are options though with non-bank lenders. Although the interest rate will be slightly higher.
We’re here to help walk you through all of this. We try and make this process as easy as possible. There are not many situations we haven’t seen before: first home buyers, low deposits, self-employment, loans from parents, flatmates, multiple investment properties, leveraging. We also help tailor the structure of the mortgage so it’s right for you.
Benefit from our experience in choosing the right lender to fit your situation and packaging your application together so you can get the mortgage and the home you want.
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