Providing Home Loan and Insurance options for the long term
Visit us on FacebookLending More Than 80%
29 August 2014With the relaxation of the Bank’s lending criteria on lending above 80% it would be pertinent time to compare the lending requirements for above and below 80% lending. 80% lending is not necessarily having a 20% deposit – it is where a loan is no more than 80% of the value of the property (or properties) that it secures. So when more than one property is involved the loan can end up being more than 80% of one of the purchase price but it could be under 80% of the property values. (NB the other security can be by way of a Third Party Guarantee ie a property owned by someone else Guaranteeing a portion of the loan).
DEPOSIT: 5% of the purchase price must be proven savings. Proven savings can also include Kiwisaver or Sale of an Asset.
INCOME: After the loan payments and any other financial commitments including living expenses Lenders want to see a bigger surplus in cashflow ie you have to have a higher income to borrow above 80% than if you did on the same loan under 80%.
FORMS OF INCOME: Some forms of income won’t be taken in to account above 80% eg Overtime, penal rates, non-taxable allowances.
RESIDENCY: NZ Residency is essential for all lenders when they are lending above 80% of the value of a property. However Non-NZ Residents are still eligible for a home loan but they would have to keep their lending under 80%.
TERM OF THE LOAN: Some lenders may insist on a shorter loan term in order to reduce bring the loan down to 80% at a faster rate.
PRE-APPROVALS: When the Reserve Bank first brought in the restrictions there could be no Pre-Approved Finance for above 80% lending. You had sign up on the property and then apply for the loan. This has relaxed a little HOWEVER we have seen many banks advising clients they should have their loan approved without taking all the details and encourage people to go and find a house and then submit a loan application. This is alarming because we find that for above 80% lending an accurate assessment can only be done with all the information being obtained. Sometimes people aren’t quite ready financially to purchase a home and they have experienced the disappointment of not being able to buy their new home once they have found it.
PRICING: This is the one of the biggest differences. Pricing above 80% is a lot more expensive than under 80%. Under 80% you can expect no application fee, substantial cash contributions from the lender and discounted interest rates. Above 80% not only are the discounts on the interest rates are not available but the interest rates may actually incur a Low Equity Margin ie a higher interest rate. There are no cash contributions. Registered valuations are usually required.
Our recommendation is:
Published In Whakatane Beacon
Financial Advice Disclosure | Complaints |Sitemap | Privacy | Design by Law Creative Group | Build by MOCA