Monday, 10 October 2011

Pre-approval Process for Home Loan


THE LOAN APPROVAL OR PRE-APPROVAL PROCESS-1st steps

APPLICATION IS COMPLETED, SIGNED AND SUBMITTED FOR ALL APPLICANTS WITH SUPPORTING PAPERSincluding-

  • EVIDENCE OF INCOME - PAY SLIPS OR FINANCIALS IF IN BUSINESS
  • CURRENT 3 MONTHS BANK STATEMENTS FOR ALL APPLICANTS FOR ALL BANK ACCOUNTS OPERATED 
  • EVIDENCE OF DEPOSIT SAVED(LOCAL OR OVERSEAS ACCOUNTS)WHETHER  BUYING FOR THE FIRST TIME OR OTHERWISE OR  DETAILS OF EQUITY IN EXISTING PROPERTY HELD BY APPLICANTS
  • EVIDENCE OF RESIDENCY OR CITIZENSHIP /PHOTO  ID FOR ALL APPLICANTS
  • PRE-APPROVAL IS NORMALLY RECEIVED WITHIN 48-72  HOURS  OR 2 – 3 WORKING DAYS NORMALLY


·        THE APPROVAL OR PRE-APPROVAL LETTER NORMALLY OUTLINES TERM OF MORTGAGE (NUMBER OF YEARS), INDICATIVE INTEREST RATES, INDICATIVE REPAYMENTS (DIFFERENT LENDERS SEND DIFFERENTLY STRUCTURED OFFER LETTERS) & IS NORMALLY WITH CONDITIONS – WHAT ARE THE CONDITIONS?

·        FURTHER EVIDENCE OF DEPOSIT (ESPECIALLY IF TRANSFERRING FROM OVERSEAS)

·        FURTHER EVIDENCE OF INCOME

·        FURTHER EVIDENCE OF  BANK STATEMENTS- MAY BE MISSING SOME INFORMATION OR ENTRIES ON THE BANK STATEMENT NEEDING CLARIFICATIONS

·        SALE & PURCHASE AGREEMENT ,6 MONTHS LOAN STATEMENTS IF REFINANCING

·        SOME LENDERS ASK FOR A BUILDING INSPECTION REPORT IF THE PROPERTY HAS BEEN BUILT DURING A CERTAIN PERIOD (LEAKY BUILDING?)

·        REGISTERED VALUATION IF USING EQUITY TO FUND NEXT PROPERTY PURCHASE OR IF PURCHASING THROUGH PRIVATE TREATY AND POSSIBLY REGISTERED VALUATION ON THE NEW PROPERTY BEING PURCHASED

·        POSSIBLE UPPER LIMIT ON MORTGAGE TERM
 
WE HAVE BRIEFLY TALKED ABOUT THE APPLICATION, DETAILS OF DOX REQUIRED FOR AN APPROVAL/PREAPPROVAL. WE HAVE YESTERDAY TALKED OF THE CONDITIONS A BANK MAY PUT DOWN ON AN OFFER LETTER.


YOU MUST FULLY UNDERSTAND THE CONDITIONS AND FINANCIAL IMPLICATIONS OF THE PRE-APPROVAL:

·         WHAT IS THE LOAN AMOUNT APPROVED-DOES IT MATCH YOUR NEEDS- IS IT WHAT YOU WERE PREPARING FOR? OR IS IT LESS THAN WHAT YOU WERE EXPECTING.

·         WHAT IS THE LOAN TERM-ARE YOU COMFORTABLE- THE LONGER THE MORTGAGE TERM, THE MORE INTEREST U END UP PAY ING THE LENDER.

·         THE SHORTER THE MORTGAGE TERM, YOU PAY MORE ON REGULAR INSTALMENTS – BUT YOU SAVE ON INTEREST COSTS.YOU COULD SAVE THOUSANDS OF $$$.

·         WHAT ARE REPAYMENTS BASED ON THE CURRENT INTEREST RATE& MORTGAGE TERM? REMEMBER TODAY’S INTEREST RATES ARE LOW AND REPAYMENTS WILL ALSO BE LOWER.INTEREST RATES ARE BOUND TO INCREASE AT SOME STAGE AND THEREFORE YOUR MORTGAGE INSTALMENT WILL ALSO INCREASE.

·         CAN YOU AFFORD REPAYMENTS BASED ON THE CURRENT INTEREST RATE AND THE TERM CHOSEN


·         WHAT WILL REPAYMENTS BASED ON HIGHER INTEREST RATES BE IN FUTURE (CALCULATE AT 9 – 10% JUST TO CHECK YOUR BUDGET CAN WITHSTAND THE REPAYMENTS). THERE SHOULD NOT BE ANY ROOM FOR A SHOCK LATER WHEN INTEREST RATES ARE HIGHER THAN TODAY’S INTEREST RATE.


·         CAN YOU AFFORD REPAYMENTS ON THE HIGHER INTEREST RATE LATER ON

DO YOU HAVE ANY MONEY LEFT OVER IN THE HOUSEHOLD BUDGET AFTER MEETING ALL EXPENSES/COMMITMENTS AND THE MORTGAGE REPAYMENT
IF YOU HAVE ANSWERED NO TO THE SAVINGS QUESTION – YOU NEED TO BORROW LESSER
IF YOU HAVE ANSWERED YES – YOU COULD START PLANNING FOR THE PROPERTY PURCHASE AND START LOOKING FOR A SUITABLE PROPERTY.


23.08.2011
AFTER YOU HAVE DRAWN DOWN THE HOME LOANAND BEGINNING TO SETTLE DOWN IN THE NEW HOME.DO YOU NEED TO BORROW AGAIN AFTER THE PURCHASE HAS SETTLED?
·        TO FURNISH THE HOUSE – NEW FURNITURE,CURTAINS,CARPETS& NEW APPLIANCES
·        TO UPGRADE FACILITIES– RENOVATIONS OF KITCHEN OR BATHROOMS OR ADDITIONS TO THE DWELLING-like a deck
·        TO REPAY OTHER DEBTS YOU HAVE TAKEN IN THE INTERIM AFTER THE PREAPPROVAL
·        TO TRAVEL PERHAPS…TO VISIT FAMILY
IF YOUR ANSWER IS YES….YOUR PLANNING HAS NOT BEEN CORRECT OR YOU HAVE IGNORED THESE EXPENSES THINKING YOU CAN MANAGE WITH WHAT YOU HAVE
IF YOUR ANSWER IS YES….YOU NEED TO BORROW LESSER OR KEEP SOME MONEY ASIDE FOR THESE EXPENSES -CONSIDER OTHER OPTIONS AVAILABLE TO YOU TO FUND THESE EXPENSES OR DELAY THE SPEND ON THESE.
PERHAPS BUDGET FOR THESE EXPENSES BEFORE YOU CONSIDER BUYING OR COMPLETE THESE PURCHASES BEFORE BUYING THE PROPERTY
IF YOU ARE REPAYING HUGE DEBTS…YOU NEED TO REPAY DEBTS FIRST BEFORE CONSIDERING BUYING
OR GET SOME FINANCIAL ASSISTANCE FROM FAMILY
THE LOAN PRE-APPROVAL PROCESS IS A DEFINITE GUIDE FOR YOUR CURRENT AND FUTURE BUDGETS
16.08.2010WITH SATEND,16.08.2011& 18.08.2011 WITH NEHA

24.08.2011-NEHA
HOW MUCH SHOULD ONE IDEALLY BORROW FOR THE HOME LOAN?
This is your affordability.
THIS CAN BE TRICKY FOR A FIRST-TIME BUYER BUT THE ANSWER IS NORMALLY STRAIGHTFORWARD FOR THOSE WITH A BUDGET.
HOW MUCH RENT ARE YOU CURRENTLY PAYING EVERY WEEK?
IS THE LOAN APPLICATION A JOINT APPLICATION? IF YES, HOW MANY INCOMES WILL SERVICE THE LOAN? WHAT IS THE NET WEEKLY INCOME FROM ALL SOURCES?ARE THE INCOMES PERMANENT OR TEMPORARY?(JOB PERMAMENT?)
HOW MANY CHILDREN DO YOU SUPPORT?ARE YOU SPENDING ON DAYCARE FOR YOUR KIDS?
ARE YOU PLANNING ON STARTING A FAMILY IF YOU HAVE NO KIDS?
ARE YOU REPAYING ANY LOANS CURRENTLY?
WHAT ARE YOUR CURRENT WEEKLY EXPENSES – INCLUDE ALL EXPENSES NO MATTER HOW MINOR THEY MAY SEEM.WHAT ARE YOUR PLANNED FUTURE EXPENSES?
HOW MUCH MONEY ARE YOU LEFT WITH AT THE END OF THE MONTH AFTER MEETING ALL EXPENSES?
THE MONEY LEFT/SAVED PLUS YOUR RENT IS NORMALLY WHAT YOU CAN AFFORD.
REMEMBER THE 30% DSR RULE FOR BORROWING.
DO YOU HAVE ANY QUESTIONS?
How much can I borrow? (AFFORDABILITY)-24.08.11-neha

Even before you start looking for a home you need to know how much you can afford to spend on your loan repayments. You will need to work out your family budget – do your maths first…
You will need at least a 5% deposit to put down towards the purchase of your home. This 5% represents your contribution towards the purchase of your home. Ideally you will have saved this amount over the last 3 months or more. In exceptional situations, the lender may consider equity from a family member’s home as a deposit.
How much does your family earn every week/ fortnight/month/year? What is the family spending every week/ fortnight/month/year …include all expenses and do not forget to include any repayments on hire purchases, car & personal loans & any other borrowings. Are you planning a holiday? Budget for this holiday as well.
What are you able to save at the end of the month after providing for all expenses….The savings you have achieved towards the end of the month, after providing for all expenditure, plus the rent you are currently paying should be a guideline to the amount you can afford towards your mortgage repayments and costs.
Most banks & lenders will allow you to borrow between 3 – 5 times your gross annual incomes. The actual amount you can borrow will depend on a number of other factors such as….number of dependent children in the family, size & repayments of any personal borrowings, the type of property you may want to purchase, the amount of initial deposit.
RULE OF THUMB – 30% OF GROSS ANNUAL HOUSEHOLD INCOME FOR THE APPLICANT/S SHOULD BE USED TO REPAY ALL BORROWING.

25.08.2011 -HOW MUCH TO BORROW? THIS IS AN EXAMPLE:
COUPLE WITH 2 SCHOOL-GOING CHILDREN ON COMBINED GROSS ANNUAL INCOME OF $125,000(APPROXIMATELY $100,000 NETT OR $8,400 MTHLY)
COUPLE HAS A JOINT BANK ACCOUNT-SALARIES GO IN HERE. MRS. MANAGES THE BUDGET.CREDIT CARD USED – PAID IN FULL.
THEY ARE PAYING WEEKLY RENT OF $ 495 FOR A 3 BEDROOM HOUSE IN CENTRAL AUCKLAND.CLOSE TO SCHOOL FOR THE KIDS.
AFTER THE MONTH’S GROCERY EXPENSES AND ALL UTILITY BILLS, PAY TV,PETROL, BUS,LIFE & OTHER PERSONAL INSURANCE, CONTENTS & CAR INSURANCE ETC COSTS ARE MET;THEY HAVE SAVED APPROXIMATELY $800 IN YOUR BANK ACCOUNT. MRS. ALSO HAS PUT AWAY ANOTHER $200 INTO AN ACCOUNT THAT NOBODY IS AWARE OF OR YOU SAVE IT AS CASH.
LET’S WORK THAT OUT –
RENT @ $495
 X 52 WEEKS = $ 25,740
SAVINGS @$ 800 PER MONTH SAVED =                                   $   9,600
ADD THESE UP NEHA? $35,340 OR SAY $ 35,000 FOR THE YEAR.
THIS IS WHAT THIS FAMILY SHOULD BE IDEALLY LOOKING TO REPAY AS THE MAXIMUM LOAN INSTALMENT PROVIDED YOU DO NOT HAVE ANY BORROWINGS CURRENTLY OR OTHER SPENDING PLANS IN THE FUTURE.
THIS FIGURE OF $ 35,000 REPRESENTS 28% OF GROSS ANNUAL INCOME.
WHAT LOAN AMOUNT REPAYMENT DOES THIS REPRESENT AT CURRENT VARIABLE RATES - APPROXIMATELY $450,000 @ 5.75%?OVER 25 YEARS.
NEHA, CAN YOU GUARANTEE INTEREST RATES WILL REMAIN THE SAME?
INTEREST RATES WILL INCREASE –
LET’S TAKE 7.50% AS THE EXAMPLE –
THE LOANAMOUNT IS APPROXIMATELY $415,000 BASED ON 7.50% OVER 25 YEARS.
I WOULD ADVISE THE FAMILY TO SETTLE FOR THIS LOAN AMOUNT OR EVEN LOWER THAN THISIF I CAN FIND A SUITABLE PROPERTY.
BUT CAN THE FAMILY FIND A SUITABLE PROPERTY AT THIS PRICE LEVEL?
HOWEVER, BANKS WILL LEND THE FAMILY MORE THAN $450,000 IF THE FAMILY APPLIES FOR THIS AMOUNT.
 IN THIS SITUATION, THE COUPLE CAN EVEN GET A LOAN APPROVAL FOR $600,000 ON A 5% DEPOSIT.
MORE NEXT WEEK ON AFFORDABILITY.







30.08.2011
LAST THURSDAY, AS AN EXAMPLE, WE DISCUSSED THE FAMILY IDEALLY BORROWING $ 450,000 AS IDEAL BASED ON THEIR CURRENT CIRCUMSTANCES – 2 WORKING ADULTS WITH 2 SCHOOL KIDS. JOINT EARNINGS $125,000 PER ANNUM.PAYING $495 PER WEEK AS RENT.NO DEBTS.
WHAT WILL REPAYMENTS BE ON $450,000 OVER 25 YEARS? NEHA -PLEASE NOTE THAT I AM NOT RECOMMENDING 30 YEARS.
CURRENT VARIABLE RATE IS $5.75% - REPAYMENT IS $652.11 PER WEEK OR $2831 PER MONTH OVER 25 YEARS ON $450,000 LOAN. THE LOAN INSTALMENT IS A BIT HIGHER THAN THE RENT PAID.
WHAT HAPPENS WHEN THE INTEREST RATE INCREASES?
WHAT WILL REPAYMENTS BE IN 2 YEARS TIME IF INTEREST RATES ARE AT A HIGHER LEVEL – SAY 7.50%.
REPAYMENT WILL BE $ 789 PER WEEK OR $3426 PER MONTH.
CAN THE FAMILY AFFORD THIS LEVEL OF REPAYMENT?IF THERE HAS BEEN NO DROP IN EARNINGS AND IF THE FAMILY HAS TAKEN ON NO MORE DEBT, THEY CAN SERVICE THE BORROWING COMFORTABLY.
WHAT IF INTEREST RATES INCREASE TO 8.50% IN 3 YEARS TIME?
WHAT WILL REPAYMENTS BE?
$868 PER WEEK OR $3773 PER MONTH OVER 22 YEARS.
THE WEEKLY INSTALMENT IS NOW ALMOST DOUBLE THE RENT-$495.
CAN THE FAMILY AFFORD THIS? IT IS BECOMING A BIT TIGHT NOW.
31.08.2011 – did not complete on account of Ramzan
01.09.2011
WE WILL CONCLUDE THIS EXAMPLE TODAY.
TUESDAY WE BRIEFLY TALKED ABOUT REPAYMENTS ON A $450,000 LOAN WHEN INTERESTRATES RISE FROM 5.75% TO 7.50% TO 8.50%.
LET’S ASSUME THE FAMILY WAS PRE-APPROVED A LOAN OF $600,000.
THE FAMILY DOES NOT LOOK FOR A SUITABLE PROPERTY IN THE PRICE RANGE OF $450,000 PLUS DEPOSITAS THEY NOW HAVE A BIGGER LOAN AMOUNT PREAPPROVED.
THIS LOAN AMOUNT MEANS A BIGGER &HOPEFULLY BETTER PROPERTY.
THE BUDGET IS NOW FORGOTTEN (TO BRING OIL) AS THE DREAMS OF A BIGGER PROPERTY COME INTO THE PICTURE.
THIS IS HUMAN NATURE. WEAKNESS FOR BIGGER /HOPEFULLY BETTER.
IF THE FAMILY TAKES ON A LOAN OF $600, 000, WHAT WILL CURRENT MONTHLY REPAYMENTS BE ON THIS LOAN?
THE REPAYMENT WORKS OUT TO $869 PER WEEK OVER 25 YEARS ON THE CURRENT VARIABLE RATE OF 5.75%.
FAMILY HAS MADE A FEW ADJUSTMENTS TO FIT IN THIS REPAYMENT. (REMEMBER, FAMILY WAS PAYING RENT OF $495 PER WEEKAND THE FAMILY WAS SAVING APPROXIMATELY $800 PER MONTH)
WHAT WILL REPAYMENTS BE WHEN INTEREST RATES INCREASE ON THIS LOAN OF $600,000? AS I MENTIONED EARLIER, INTEREST RATES WILL INCREASE WITH TIME.
WHAT WILL WEEKLY REPAYMENTS BE IN 2 YEARS WHEN THE INTEREST RATE HAS REACHED 7.50% & 8.50%?
WEEKLY REPAYMENTS WILL BE $1051.71@ 7.50% AND OVER $1150 PERWEEK @ 8.50%(RENT WAS $495) AND ARE MUCH MORE THAN DOUBLE THE RENT PAID.
THIS IS NOW EQUAL TO 44% OF GROSS ANNUAL INCOME (ASSUMING INCOMES HAVE NOT DROPPED AND ARE AT SAME LEVELS AS WHEN THE LOAN WAS TAKEN) OR 55% OF NET ANNUAL INCOME
CLOSE TO 60% OF NET MONTHLY INCOME @ 8.50%.
THE COUPLE EARNS $8400 NET PER MONTH & $4560 PER MONTH IS GOING TOWARDS THE MORTGAGE PAYMENT.
HOW DO YOU AVOID THIS SITUATION? CAN YOU AVOID THIS SITUATION?
YOU CAN AVOID THIS BY MAKING A BUDGET AND STICKING TO IT.
MORE ON MORTGAGES NEXT WEEK.














MANAGING DEBT
In the last few years more people have found themselves challenged with debt.
Sadly in the society we live in, it has become way to easy to get credit and we have become a nation of spenders. The latest stats are that we are spending $1.02 for every dollar we earn.
That's well down on a few years ago when we were spending $1.15 for every dollar we earned however it's still not that great. Ideally as a nation we should be spending less than we earn and saving the difference.
If you are worried about your credit rating you can go to www.mycreditfile.co.nz and there is a form that you can complete called the Request for Access to Your Personal Credit File or My Credit Alert.
There are both free and charged for options. It worth having a look at what history there is on you, whether you think there may be an issue or not.
You cannot change your current rating so the best thing is to focus on getting on top of your debts so in the future you can improve your rating.

Here are some tips:
1. Understand what your total debts are
This may seem obvious but I've often found with that when people sit down and add up all their debts what they thought they owed can often be quite different from the reality.
2. Understand the details of what you owe
Make a list of all of your debts:
• who do you owe
• how many payments do you have to go
• what are the interest rates
• are there restrictions with paying any of them off earlier (common with car loans)
• are their any balloon payments (large payments at the end)
• does the interest rate increase if you haven't paid off the loan within a certain period
• what are the minimum payments
3. Establish how much you can pay off
To do this you will need to do some kind of budget so you know how much spare money you have each week/month to put towards your debts.
4. Develop a payment plan
When you have all the information you need you can work out a plan of HOW you are going to tackle paying of your debt.
5. Be strategic about what you pay off
If you have extra money that you can put towards fast tracking your payments and you have met all of your minimum payments then pay off debts with the highest interest rate first. Once that debt has gone, start on the next one and so on.
6. Remove temptation
It's not much use putting all that work into paying off your debts if you are going to rack them up again. Find another hobby other than shopping and put your credit card somewhere you can't get easy access to it.
7. Negotiate with your creditors
If you are behind in your payments communicate with your creditors. Usually they will be okay if you keep them in the loop, but make an effort and do what you say you are going to do.
8. Avoid late payments
Try to keep on top of all debts so you don't incur any additional fees and charges.
9. Monitor and review
Keep an eye on your progress and adjust your plan when necessary. Keep track of how much you are paying off as this can be very motivating.

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