Buying an investment property can be a major financial decision. Whether you are purchasing your first rental property or adding another to your portfolio, securing the right financing is an important part of the process.
An investment mortgage broker can help you understand your borrowing options, compare lenders and work through the finance structure that may suit your circumstances.
Investment lending can be more complex than a standard home loan. Lenders may look at your income, existing mortgages, rental income, property values, deposits, expenses and the overall size of your property portfolio.
This guide explains how an investment mortgage broker can help, what lenders may consider and what to think about before applying for investment property finance in New Zealand.
What Does an Investment Mortgage Broker Do?
An investment mortgage broker helps property investors find and arrange mortgage finance for an investment property.
Instead of approaching just one bank, a broker can assess your financial position and help you explore lending options from different lenders.
Their role may include:
- Understanding your investment goals
- Reviewing your current mortgages
- Assessing your available deposit or equity
- Looking at your income and expenses
- Considering rental income
- Comparing suitable loan options
- Helping with the application process
- Explaining lending conditions and costs
The exact services available depend on the broker and lenders involved.
For an investor, having someone look at the bigger financial picture can be useful, particularly when you already own one or more properties.
Why Is Investment Property Finance Different?
An investment property is usually purchased to generate rental income and potentially grow in value over time. However, lenders still need to assess whether the proposed lending is affordable and suitable.
Your application may involve more factors than a straightforward owner-occupied home loan. For example, a lender may consider:
- Your employment or business income
- Existing home loans
- Other personal debts
- Expected rental income
- Property expenses
- Your deposit or available equity
- The value of the property
- The type of property
- Your existing investment properties
This is one reason mortgage broker services can be useful for investors. Your circumstances can be assessed before you start making offers on properties.
How Can an Investment Mortgage Broker Help?
Understanding Your Borrowing Position
One of the first questions investors often ask is, how much can I borrow? Lenders may offer based on your circumstances. There is no single answer that applies to every investor. Your borrowing position can depend on income, expenses, existing debt, deposit, rental income, and lender-specific affordability assessments. A broker can help you understand the numbers before you start searching for a property.Exploring Different Lenders
Different lenders can have different lending policies and criteria. Some may be more suitable for a particular type of investor, property or financial situation than others. A broker can help you understand which lenders may be worth considering based on your circumstances rather than assuming your current bank is your only option. This can be particularly useful if you are self-employed, have multiple properties or have a more complicated income structure.Reviewing Your Existing Equity
If you already own a home, you may have built up equity that could potentially form part of the funding for an investment purchase. For example, you may have a property worth more than the amount you owe on the mortgage. However, having equity does not automatically mean you can borrow all of it. Lenders still assess your overall financial position and affordability. A broker can help you understand how your existing property and mortgage may fit into a proposed investment purchase.
Do You Need Mortgage Pre-Approval?
Mortgage pre-approval can be helpful when you are looking for an investment property.
Pre-approval can give you a clearer idea of your potential borrowing position before you begin negotiating with sellers. It may also help you understand:
- Your potential lending amount
- Conditions attached to the approval
- The deposit you may need
- Which properties may fit your budget
- What documentation the lender requires
However, pre-approval does not necessarily mean every property you find will automatically be approved.
The lender may still need to assess the specific property and complete other checks before confirming the final loan.
How Much Deposit Do You Need for an Investment Property?
The deposit required can vary depending on your circumstances, the property and the lender.
New Zealand's loan-to-value ratio rules can affect how much banks may lend in certain situations. The Reserve Bank of New Zealand sets these restrictions for banks, while banks also apply their own lending criteria.
This means you should not assume that every investor will need exactly the same deposit. Your deposit could potentially come from:
- Savings
- Equity in an existing property
- Proceeds from selling another property
- Other acceptable sources of funds
Before making an offer, it is important to understand how much you can realistically contribute and how much borrowing you can manage.
Can Rental Income Help With a Mortgage Application?
Rental income can form part of the financial assessment for an investment property.
However, lenders may not treat rental income in the same way as employment income. They may apply their own calculations or use only part of the expected rental income when assessing affordability.
You should also remember that rent does not automatically cover every property cost. An investment property may have expenses such as:
- Mortgage interest
- Rates
- Insurance
- Property management
- Repairs and maintenance
- Body corporate fees, where applicable
- Periods without a tenant
A good investment plan should account for these costs rather than relying on rent alone.
What Should Investors Consider Before Applying?
Before applying for investment property finance, take time to understand your financial position.
Review your current debt
Look at your existing mortgages, credit cards, personal loans and other commitments. Your current debt can affect your borrowing capacity and the amount a lender may be willing to provide.
Work out your available equity
If you already own property, understand its current value and how much you owe against it. An updated valuation may be useful when assessing your options.
Set a realistic property budget
Do not base your budget only on the maximum amount you could potentially borrow. Think about what monthly repayments you can comfortably manage if interest rates change or your circumstances change.
Consider the property's expected income and costs
Research the likely rental income and running costs before deciding whether a property makes financial sense.
Can a Mortgage Broker Help With an Investment Portfolio?
An investor with several properties may have a more complicated lending structure than someone buying their first investment property. You could have:
- Multiple mortgages
- Different interest rates
- Several lenders
- Rental income from multiple properties
- Different property values
- Existing equity
- Various repayment structures
This is where working with a mortgage broker may be particularly helpful.
Instead of looking at each loan separately, your adviser can help you consider how the proposed purchase fits into your wider financial position.
What About Non-Bank Lenders?
Banks are not the only source of property finance in New Zealand. Depending on your circumstances, non-bank lenders may also be an option.
Non-bank lending can sometimes provide solutions for borrowers who do not fit a particular bank's standard lending criteria.
However, non-bank finance can have different interest rates, fees and conditions. It is important to understand the total cost and terms before proceeding.
A mortgage broker NZ can help you understand which lending options may be available based on your circumstances.
How to Prepare for a Mortgage Application
Being prepared can make the application process easier. Consider gathering:
- Proof of income
- Bank statements
- Details of existing mortgages
- Information about other debts
- Evidence of your deposit or equity
- Details of existing investment properties
- Rental income information
- Information about the property you want to buy
Your lender or broker may request additional documents depending on your circumstances.
The better organised your information is, the easier it can be to assess your position and identify potential lending options.
How Capital Finance Can Help Property Investors
Capital Finance helps New Zealand borrowers explore home loan and property finance options. Its services include investment property lending, refinancing and other forms of property finance.
As an independent mortgage adviser, Capital Finance works with major banks and a range of other lenders. This can give investors an opportunity to consider different lending options rather than relying on a single lender.
If you are considering your next investment property, Capital Finance can help you understand your borrowing position and work through the finance options available for your circumstances.
Thinking about your next investment property? Talk to Capital Finance before making an offer so you can better understand your potential finance options and borrowing position.
FAQ
What is an investment mortgage broker?
An investment mortgage broker helps property investors explore mortgage options for purchasing investment properties. They can assess your financial position, compare suitable lenders and help with the mortgage application process.
Is using a mortgage broker worth it for an investment property?
It can be useful, particularly when your finances are more complex or you want to compare options from different lenders. A broker can help you understand your potential borrowing position and available loan structures.
How much can I borrow for an investment property?
The amount you can borrow depends on factors such as your income, existing debts, deposit, equity, rental income, property value and the lender's criteria. There is no universal borrowing limit for every investor.
Do I need mortgage pre-approval before buying an investment property?
It is not always mandatory, but mortgage pre-approval can help you understand your potential borrowing position before you make an offer. Final approval may still depend on the specific property and other lender requirements.
Can I use equity to buy an investment property?
Potentially. Investors may be able to use available equity in an existing property as part of the funding for another purchase. However, the lender will still assess your overall affordability and financial position.
Can rental income help me qualify for an investment mortgage?
Rental income may be considered by a lender when assessing your application. However, lenders can apply different calculations and may not count the full expected rental income.
Can a mortgage broker help if my bank declines my investment loan?
A broker may be able to help you understand why the application was declined and whether other lending options could be available. However, approval is never guaranteed and depends on the lender's criteria.
