Buying a home is exciting, but getting your finance approved can sometimes feel like the hardest part. You may have a steady income, a deposit saved, and a clear idea of the property you want. Then your lender asks for more information, puts your application on hold, or says no.
So, what went wrong?
A mortgage pre-approval is an early indication from a lender that they may be willing to lend you up to a certain amount, subject to conditions. It can help you understand your budget before you start making offers. However, it is not a guarantee that your final home loan will be approved.
If your application is delayed or declined, it does not always mean you cannot get a home loan. Sometimes the issue is missing information, a lender's lending policy, or the way your finances have been assessed.
Here are seven common reasons to understand before you apply.
1. Your application is missing important documents
One of the most common reasons for a delay is simple: the lender does not have everything it needs.
A lender may ask for information such as:
- Recent payslips
- Bank statements
- Photo identification
- Proof of your deposit
- Details of existing loans
- Credit card information
- Employment details
- KiwiSaver information, where relevant
If you are self-employed, you may also need business financial statements, tax information or other evidence of income.
Capital Finance recommends preparing clear financial documents before making a mortgage application. Having everything ready can make the assessment process easier and reduce unnecessary back-and-forth.
If the lender has asked for additional documents, try to provide them as soon as possible. A delay does not necessarily mean your application is in trouble.
2. Your existing debts affect your borrowing position
Your income is only one part of a lender's assessment. Your existing financial commitments also matter.
These may include:
- Personal loans
- Car finance
- Credit cards
- Buy-now-pay-later accounts
- Existing mortgages
- Other regular repayments
A lender needs to be satisfied that you can manage the proposed mortgage alongside your current commitments.
Even unused credit facilities can be relevant. For example, having a large credit card limit may affect how a lender assesses your financial position, even if you do not normally use the full amount.
Before applying, review your existing debts and credit limits. If you have accounts you no longer need, it may be worth discussing them with your mortgage broker before making changes.
3. Your income is difficult for the lender to assess
Stable income can make a home loan application easier to assess. But not everyone's income looks the same.
You may have:
- Commission-based income
- Casual employment
- Multiple jobs
- Overtime
- Bonuses
- Contract work
- Self-employed income
- A recent change in employment
This does not automatically prevent you from getting a mortgage. However, a lender may need more evidence to understand how reliable your income is.
Self-employed borrowers, for example, may need to provide business financial information and tax records. Different lenders can also take different approaches to non-standard income.
This is one area where mortgage broker services can be useful. A broker can help you understand what information may be required and identify lenders whose criteria are more suitable for your circumstances.
4. Your living expenses are higher than the lender expected
Lenders look at more than your salary. They also consider your regular household spending when assessing whether you can comfortably manage the proposed loan.
Your expenses could include:
- Groceries
- Utilities
- Insurance
- Transport
- Childcare
- Subscriptions
- Existing repayments
- Other household costs
This is important because two households with the same income may have very different borrowing positions.
For example, a household with fewer financial commitments may have more room in its budget for mortgage repayments than a household with several dependants and significant monthly expenses.
Capital Finance explains that lenders consider income, expenses, existing debts and other financial commitments when assessing borrowing capacity.
5. Your deposit or loan structure does not meet the lender's requirements
Having a deposit is an important part of buying a home, but the amount and source of your deposit can affect your lending options.
A lender may look at:
- How much deposit you have
- Where the deposit came from
- The proposed loan amount
- The property's value
- Your overall financial position
- The lender's lending criteria
For first-home buyers, the deposit may include personal savings, KiwiSaver funds or other eligible sources.
Capital Finance works with first-home buyers and helps them understand their deposit and pre-approval options. Its team also works with investors who may be able to use equity in an existing property as part of their finance structure.
If your deposit is smaller than you expected, don't immediately assume you need to give up on buying. Your options may depend on your complete financial position and the lender you approach.
6. Your credit history raises questions
Your credit history helps lenders understand how you have managed borrowing in the past.
Late payments, defaults or other credit issues may make an application more difficult. A lender may ask for additional information before deciding whether to approve your application.
This does not mean a previous financial problem automatically prevents you from getting a mortgage. However, it is better to understand your position before submitting an application.
If you know there is an issue in your credit history, discuss it with a New Zealand mortgage broker before approaching a lender. You may be able to understand what caused the problem, what information the lender may need, and whether another lending option could be more appropriate.
7. The lender may not be the right fit for your situation
Sometimes an application is declined because the lender's criteria do not suit the borrower.
Different lenders can have different approaches to:
- Self-employed income
- Credit issues
- Deposit sizes
- Investment properties
- Existing debt
- Overseas income
- Complex financial situations
This is an important reason not to assume that one lender's decision represents every lender's decision.
Capital Finance is an independent mortgage brokerage based in Papakura, Auckland. The business works with a range of major banks and non-bank lenders and says it considers different lending situations, including first-home buyers, self-employed borrowers, investors and people new to New Zealand.
A mortgage broker Papakura borrowers can speak with may therefore help them understand which lenders could be worth considering before another application is submitted.
What Should You Do If Your Pre-Approval Is Delayed?
First, find out exactly why the application has been delayed.
Ask whether the lender needs:
- More documents
- Clarification about your income
- Further information about your deposit
- Details about existing debts
- An explanation for unusual transactions
Avoid making major financial changes while your application is being assessed without first discussing them with your adviser. Taking on new debt, changing employment or making large purchases can change your financial position.
It is also worth remembering that a delay is not the same as a decline. A lender may simply need more information before it can make a decision.
What If Your Pre-Approval Is Declined?
A declined application can be disappointing, but it is important to understand the reason before deciding what to do next.
Start by finding out what caused the decline. It could relate to affordability, debt, income, credit history, deposit requirements, or the lender's own policy.
Do not simply submit several applications to different lenders without understanding the issue first. A better approach is to review your position and determine whether there is another suitable lending pathway.
This is where an experienced mortgage broker can help. Rather than looking only at one bank, a broker can review your circumstances and compare potential options across their lender network.
How Capital Finance Can Help
Capital Finance is an independent mortgage and finance brokerage based in Papakura, Auckland, helping clients across New Zealand. The team works with first-home buyers, property investors, self-employed borrowers and people refinancing their existing mortgages.
Because Capital Finance works with a range of lenders rather than a single bank, its advisers can look at your circumstances and help identify potentially suitable lending options.
The company says its advice is free, with no pressure or obligation, and that it handles the application process from assessing what you may be able to borrow through to managing the application and negotiating terms.
If your mortgage pre-approval has been delayed or declined, speaking with an adviser before making another application may help you understand what went wrong and what your next step could be.
FAQ
Frequently Asked Question 1: What is mortgage pre-approval in New Zealand?
Mortgage pre-approval is an indication from a lender that they may be prepared to lend you up to a certain amount, subject to conditions and final approval requirements. It helps you understand your potential budget before buying a property.
Frequently Asked Question 2: Why can mortgage pre-approval be delayed?
A pre-approval can be delayed when a lender needs more information or documents. Income, existing debts, expenses, deposit evidence and credit history may all need further checking.
Frequently Asked Question 3: Can mortgage pre-approval be declined?
Yes. A lender can decline an application if it does not meet its lending criteria. However, a decline from one lender does not necessarily mean every lender will reach the same decision.
Frequently Asked Question 4: Can I get a mortgage if I am self-employed?
Yes. Self-employed borrowers can apply for home loans, although lenders may require additional evidence of income, such as business financial statements or tax records.
Frequently Asked Question 5: Should I apply to another lender after a decline?
It is usually sensible to understand why the first application was declined before submitting another application. A mortgage broker can help review your circumstances and discuss potential options.
Frequently Asked Question 6: Does having a credit card affect mortgage approval?
It can. Lenders consider existing credit commitments when assessing your ability to manage a mortgage. Your credit limits and repayment history may therefore form part of the assessment.
Frequently Asked Question 7: How can a mortgage broker help with pre-approval?
A broker can review your financial position, explain lender requirements, compare suitable lending options and help prepare your application. Capital Finance works with a range of lenders across New Zealand.
Frequently Asked Question 8: Can first-home buyers get mortgage pre-approval?
Yes. First home mortgage broker support can be useful for buyers who need help understanding their deposit, borrowing position and lender requirements before they begin making offers.
