How Much Can I Borrow? Mortgage Advice in New Zealand

How Much Can I Borrow? | Episode 3 - Advanced Mortgage Solutions Podcast w/ Scott Miller

In this episode of the Advanced Mortgage Solutions Podcast, host Joel Sadler is joined by Scott Miller, an expert from Advanced Mortgage Solutions. They discuss the critical topic of 'How Much Can I Borrow?' for property buyers.

Scott, with his extensive background in property investment, logistics management, and finance, shares valuable insights on assessing affordability, utilizing accurate bank calculators, and creative ways to increase income for better borrowing capacity.

The episode also covers the significance of pre-approval, grants, and cash rebates from banks for first-home buyers and investors.

Tune in for a comprehensive guide on navigating mortgage solutions.

00:00 Introduction and Guest Welcome
00:43 Understanding Borrowing Capacity
03:04 Creative Income Solutions
06:31 The Importance of Pre-Approval
09:56 Grants, Rebates, and Final Tips
13:53 Contact Information and Conclusion

For assistance with a new or existing home loan, reach out to Advanced Mortgage Solutions today. www.advancedmortgagesolutions.co.nz 

Transcript

SPEAKER_01 0:06

Alright, hi everybody. Welcome back to the Advanced Mortgage Solutions Podcast. I'm your host, Joel Sadler, and our guest, well, and expert today is Scott Miller from Advanced Mortgage Solutions, the man himself. This podcast is about giving back to the community and helping people with the property side of things and education side of things. Scott's been a property investor for 20 years and his professional background is in logistics, management and finance. He's a certified financial advisor specialising not just in mortgage broking but in across the board, so you get a full range of experience and expertise from him. Today's episode we're going to cover off another really hot topic for property buyers, whether you're starting out or whether you're experienced, and that is the magic question: how much can one borrow? So, Scott, welcome to the podcast. What are your thoughts on how much can I borrow, mate? Show me the money. Hey, thanks, Joel.

SPEAKER_00 1:02

Great introduction. Affordability is a big one, and as you know, the banks have their own calculators that you can use online. They're largely a tool to pick up the phone because the the level of accuracy in those type of online calculators is woefully short of what is actually completed in a full assessment. So what we tend to do is on the first introduction to a client coming to contact us is we'll send them an income and expense form, which is an online portal. It allows you to do it on your phone or on your computer. It doesn't matter if you own an Apple or a Windows machine, it will just work across all fields. And then with that kind of detail, we can uh fix, we can actually enter the information into a true affordability calculator supplied by the banks. And the important bit with that is that you're using exactly the same calculators that the bank are using to assess the application and come to a decision. So you know that there's just nothing missed at all. Um, there's things out there that are important to know. Banks are not allowed to put a person into a position of financial hardship by approving them a loan. So the way that the assessment is completed nowadays is quite conservative. They've got a higher assessment rate than the actual rate that you're going to end up on when you actually are approved for a loan to ensure that when rates go back up, it wouldn't place you into a position of unaffordability. So again, it's where those online calculators sort of come a little woefully short in what the information you're actually getting. Where we're really getting down to the heart of the matter right from the start.

SPEAKER_01 2:43

Yeah, yeah, I've noticed that actually. When I've went through the process in the past, you know, it's even a couple of the calculators were slightly different, the online ones. But then when I caught up with uh, you know, someone like yourself, an advisor, not only were the outputs different, but also their ideas on, hey, have you thought about doing this? Or you know, so so if someone's coming up, you know, what would be some ways to say for example I was a little bit short, say I wanted to, you know, buy a home worth, I don't know, let's just say$700,000 and I had you know the the the million dollars to keep it simple, so a million dollar home, I've got the 20% deposit which is 200k, so an eight hundred thousand dollar mortgage, but my I I didn't have the cash flow to to get to get that, say, you know,$100,000 short. If I came up with a creative way to create that extra income, like another job or rented a room out or something like that, can you tell me about that? Can can you make that work?

SPEAKER_00 3:40

Yeah, sure. And then that's a really good point. There's more than one way to come forward with income. You might remember a couple of years ago the banks were declining applications because people were drinking too many coffees. Avocado, you know, smash was pushing you out of your affordability. Look, all of that kind of thing has has gone now. It's been rewound to a point where you don't have to count those kind of and those kind of expenses into consideration. But at the flip side, and this is where they sort of give you in one hand and take out of the other, they now only really rely on base income. So things like shift allowances, overtime, bonuses, all those sorts of things are no longer really taken into consideration unless you can absolutely show, say, over a two-year period, that they are very, very steady and the same. So any variances in those kinds of incomes do get sort of hit on the head now, which is a bit of a shame. But going back to your point, you know, largely when you buy your house, you're buying your castle to a certain extent. It might not be your dream castle or your lane castle, but you've got to start somewhere. And things like having borders might not be the most attractive thing because you're getting away from a you know a renting kind of situation anyway. But that is certainly kind of the type of income that lenders will take into consideration. So at that level of lending that you've just mentioned, you know, that's quite high for a first-time buyer, but you know, yeah. But you know, it was for the mass, it was for my filling up the room for the mass there, Joel. But hey, look, you know, from that point of view, you'd probably be buying a house that would at least have four bedrooms, right? So even if you're buying with your lovely partner and and you've still got one child or something, you know, there might be another one or two bedrooms that were free that you could use for border income. Um, it does help with the assessment. Um, at the time of assessment, we could also look at the level of contribution towards your KiwiSaver, for example. So you might be, you know, at six or eight or ten percent. We could reduce that back down to say three percent, or even go on a contribution holiday for a while. Usually that's a 12-month period. And it just means for that period, instead of giving that six, eight, or ten percent of your wage to your KiwiSaver, which is a great idea, you put it on hold, it's a zero percent. That six, eight, or ten percent now goes back into your wallet, and we can use that as part of the assessment income again. So multiple ways of sort of getting to maximize your income efficiencies in the level that you want to get to.

SPEAKER_01 6:17

Gosh, I never heard that one before. That's awesome, Scott. Wow, interesting. Yeah, see, to me that's the the hands-down value of speaking to someone like you, you know, like all these little ways that you can see to help someone actually achieve what they're after, you know. The other another word that sort of I suppose bandied about, and I see a lot of questions online about, and I wasn't too sure of what I meant at the start when I first bought my you know, first home, and that was the pre-approval. Pre-appro or just pre-approval. Everyone says, Oh, I've got pre-approval, we should get pre-approval. Like, what does pre-approval even mean and what is it? Why should I get it?

SPEAKER_00 6:51

Yeah. Yeah. No, really good question. It's not essential to get pre-approval. We can still hit the ground running once you've had an offer accepted and do everything at once. But that's really where the sort of pressure comes in is that you're doing everything at once. A pre-approval allows us to go to a bank before you've had an offer accepted on a house. We can present a potential purchase price to them, and they do an assessment to say, hey, you or you and your partner are able to purchase up to the amount that you've asked for, and we're going to pre-approve you to that level. And what it means is that you've got 75% of the process of getting finance out of the way. So when you do have that offer accepted on a house, you've got way more time just to do all of your focus on your due diligence to buy that house, and there's only a couple of little things we've got to tie up to complete that pre-approval process. It's important to know that when you get pre-approved, it's a pre-approval to the applicants. It's not a pre-approval to the asset that they're looking to purchase, be it a first home, a rental, or whatever. So what happens is the bank will do an application on you or you and your partner as the applicants and say, hey, you guys are fine, come this way, bring in the sales and purchase document once you've had an offer accepted. And that allows them also, as part two of the application, is then to go and assess the security. But they're not assessing you and the security at that stage because you've been pre-approved and you've already had that big tick. So now that you're spending time like you are at that time, making sure that the property is what it says it is. Speeds up the process and you keep more of your hair on at the time that everything everyone is trying to get in front of you for one reason or another when you're purchasing a property.

SPEAKER_01 8:43

Yeah, and I suppose really important, well, not important, but but a real help if it's a hot market, like an auction, for example, and you're trying to bid on a you know your first home that's stressful enough. But I suppose having a bit of an idea of what the max might be that you can be approved by hundred for, you know.

SPEAKER_00 9:02

Yeah, and look, you've hit the nail on the head on something I hadn't thought of. Um, without a pre-approval, you certainly can't go to bid at auction. Not only have you not been approved, but nor has the property been approved. It's one of those weird things about that not only do you have to have your finance sort of ticked for you, but the bank have had to have done an assessment before the auction starts on the security that you're looking to purchase to make sure that they are willing to go into partnership with you on that security. So things that might not, you know, fit the the guidelines of an acceptable security would be obviously red zoned, or as is where is, you know, something that's not insurable would not be able, you wouldn't be able to purchase as a first home because no insurance equals no mortgage.

SPEAKER_01 9:52

Interesting. Yeah, that makes sense. Awesome. And finally, Scott, to wrap up this episode, um, tell me a little bit about uh grants and rebates from the bank. I think it was the last property cycle before that that boom that happened, you know, in the last cycle. A lot of friends when they were, you know, refinancing at the time were getting offers from banks like cash, lump sum amounts and all that. Tell us about what that is and how does that work and is it open to first home buyers or what's the what's the deal on the rebate side of things?

SPEAKER_00 10:24

It's true. Let's start from what's available from the government. You used to have the first home grant. You've noticed that I've used the word used to. Unfortunately, that's that's been removed now. So simply it's you know the cash or the savings that you've got, your Kiwi Saber, and maybe some family assistance towards the deposit. As far as cashback, the banks pretty much all offer that, regardless of what you're purchasing, a first home, a subsequent home, a rental property, even refinancing. You've got to be aware, though, with those cashbacks, is there's a clawback period on those cashbacks from the bank. So if you decided to refinance away from a bank within, say, a three-year term is the most common, then on a pro-rated basis, they'd ask for some of that money back that they gave you because the the cashback's not there to just take and walk away and then go to another bank and get another load of cash back, and then you know, it's just to say, hey, thanks for using us. Here goes something to show our appreciation, but we'd really like you to hang around for three years or more before, you know, looking at other options. Um, so it's a very helpful assistance in cash-wise from a bank. I suppose the thing to recognize is that it's only paid on the night of settlement, and most people that are involved in the process of buying a house will have their handout for their little whatever they've done for you, a building report, a registered valuation, maybe even your solicitor before settlement. So you've sort of got to have a little bit of cash reserve to pay for those things, knowing that the bank will refund usually more than the total that you're gonna pay out in the cashback. So just to summarize, you get more cash back usually than the cost to buy a home, which is good.

SPEAKER_01 12:09

Yeah. That's a really good point. What would you say someone, you know, has set aside to pay legal fees and any of those other little fees prior to everything settling?

SPEAKER_00 12:20

It changes slightly depending on how much of a deposit you have. So if you have less than a 20% deposit, then most banks will ask for a registered valuation, which costs averagely around a thousand dollars. Usually a little less, but let's say an average of a thousand dollars. If you have a twenty percent deposit and you're buying a property, then most of the time there's not the need for a registered valuation, so you save yourself that thousand dollars. So the two different sort of levels of savings that you would want. If you don't have a twenty percent deposit, you sort of want around look, you'd get change out of four thousand dollars easily. In fact, three and a half thousand dollars, you'd get change out of three and a half thousand dollars, and then get your cash back that would recoup that money. If you had a twenty percent deposit, then it would be even slightly less because there'd be no need for a registered valuation.

unknown 13:14

Right.

SPEAKER_00 13:14

So yeah, I mean, don't clean out the cupboards absolutely completely to pay the deposit and nothing for those expenses because they will come along, but then also realize that the bank will more than recoup that through the cashback, as I mentioned earlier. Look, even for a small purchase, you know, first-time buyers are usually at the lower end of the range in house prices. The most banks put out a guarantee of a minimum of$5,000 cash, so that's a lot of money, you know. And then if you've got your 20% or you're buying something, you know, a little bit higher up in the value of the property, then they'll pay up to 0.9 of the loan total.

SPEAKER_01 13:50

Yeah, brilliant. Awesome. Well, this has been really helpful today, Scott, just to talk through these things. If if someone's listening and they want to get in touch with you to have this value exchange, you know, one-to-one, then ask you these questions and you help them journey through their mortgage process, whether it's first home, second home, whatever it might be, how does someone get hold of you?

SPEAKER_00 14:09

Yeah, look, probably the easiest way is via the website. We have a first-hand buyer's guide that's free to download. We have contact forms on the website that you know directly contact us to come and get hold of you, and then we can start that process of setting out the income and expense form as mentioned earlier that starts the process of assessment. It's really easy.

SPEAKER_01 14:32

Awesome. Thanks Scott. We'll see you on the next episode. Thanks, Joel. Bye.