The amount you can borrow for a home depends on two key factors: how much you can afford to repay based on your current income and the amount a lender is willing to lend on a particular property.
Lenders assess your ability to make repayments while ensuring you have enough money left for your living expenses. However, each lender has its own approach to calculating this, meaning their criteria and methods can vary. That’s where talking to a mortgage broker like us is helpful – we can match the lender to your personal circumstances.
A general guideline suggests that fixed payments—your mortgage repayments plus any other loan or hire purchase commitments—should not exceed 30–40% of your gross income. Knowing your income and current fixed payments allows you to calculate the mortgage repayment level a lender may permit. From there, you can estimate the size of the loan you can afford.
It’s crucial to consider how rising interest rates could affect your ability to make repayments. If you’re unsure, online mortgage calculators can help you assess potential repayments under various interest rate scenarios. Many lenders also offer their own calculators to provide a rough estimate of how much you can borrow, though these may not account for your existing debts. For a more precise assessment, make a time to have a quick chat with us.
Some lenders calculate a “minimum surplus,” also known as uncommitted monthly income (UMI), which is the amount left after deducting fixed payments and a living allowance. This figure varies by lender, with higher UMI requirements for borrowers seeking larger loans or those with a high loan-to-value ratio (LVR). For example, someone borrowing 95% of the purchase price may need a UMI of $750 to $1,000 monthly.
If you plan to have flatmates contribute to the mortgage, some lenders will consider 70–80% of the rental income, while others may disregard it.
Typically, lenders will finance up to 80% of a property’s value or purchase price—whichever is lower. However, in rural areas or for apartments, the loan-to-value ratio (LVR) may be lower.
In some cases, you could borrow up to 95% of a property’s value, but this comes with additional risks and costs.
For high-LVR loans, lenders may charge a low-equity premium or require mortgage indemnity insurance to mitigate their risk. These costs, either paid upfront or added to your loan, do not protect you but serve as extra security for the lender. Some banks may also increase the interest rate for high-LVR loans, so it pays to compare offers. Additionally, lenders may require a registered valuation for properties with high LVRs or private sales, lending based on the lower of the purchase price or valuation.
Most lenders require a cash deposit as part of securing a home loan. This is because having your own money invested in the property demonstrates commitment and financial stability. Whether the deposit is from your savings or gifted by a family member, most lenders view both sources as acceptable. However, deposits sourced from additional loans are generally not allowed, as they increase your financial obligations and make it harder to manage repayments.
If you are borrowing up to 95% of a property’s value, lenders are more likely to insist that the deposit comes from your savings rather than a gift. This indicates to the lender that you have financial discipline and can handle the ongoing responsibility of a mortgage.
With house prices rising faster than many can save, government assistance is available for those who can afford mortgage repayments but struggle to meet the 20% deposit required by most lenders. The First Home Loan scheme offers an alternative with lower deposit requirements, though it has specific income and house price limits.
For first-time buyers, KiwiSaver funds can also be a valuable resource for contributing to a deposit.
A poor credit history—such as missed hire purchase payments or unpaid utility bills—can be recorded on your credit report and impact your ability to secure a home loan. Lenders may respond by offering a lower loan-to-value ratio or declining the application altogether.
For those turned down by standard lenders, specialist lenders may be an option. These lenders cater to higher-risk borrowers but typically involve higher borrowing costs. They are usually accessible through mortgage brokers who can help navigate these alternative lending options.
Once you have nearly got your deposit together the next step is to get ‘preapproval’. You can do this before you have found a property, to make the buying process faster and easier. You can then house hunt knowing what you can (and can’t) afford from day one.
You’ll need to provide these documents:
We’ll then assess your situation and discuss with you the best options for your circumstances. We’ll then present this to the lender for preapproval. We’ll work with them to get a specific loan amount you can expect to borrow.
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