What to do after being pre-approved

You’ve taken the first big step to buying a home – here’s what happens after being pre-approved for a home loan, and what you’ll need on your journey to buying a home.

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Getting pre-approval (also known as conditional approval) is one of the major steps in buying a home.

A situation many people face after being pre-approved, is asking themselves, ‘now what?’ The typical 90-day window your pre-approval is valid for can suddenly feel very short.

So here are a few things to consider when you’re planning what to do after being pre-approved.

Build your buying team

One of the best things to get sorted early is building out your support team. You’ll likely already have a home loan specialist, but there are still a few people you’ll need to add to your line-up:

• A lawyer/conveyancer who can help with your sale and purchase agreement, your conditions, and transferring ownership on a successful home purchase.
• A building inspector who can provide a building report on the property for existing and/or potential future issues.
• An insurer who can provide the appropriate insurance for your future home, which is a requirement of any home loan.

Having this team lined up means you can move quickly when you find a place you love that ticks all your boxes. 

If you have any friends or family who’ve recently bought or sold, ask them who they worked with, and whether they’d recommend them. Otherwise, a quick online search can usually find some good, local options.

Work out what’s comfortable

While the amount you’re pre-approved for gives you a good idea of your budget, it’s important to remember you don’t need to spend the full amount. On top of your loan repayments, there are other ongoing home ownership costs to account for in your budget, like insurance, maintenance, rates, and utilities.

Factoring these costs in now could help prevent any unexpected financial surprises down the line.

You can use home loan calculation tools to work out a rough idea of what repayments will likely be for different home loan amounts within your pre-approved limit. This way, you can see what size home loan would suit your lifestyle, while also leaving room for everyday costs and any savings goals, like a family holiday. 

Starting to look at properties

Now you’ve got your team sorted, and you know your rough budget, you’re in a good position to consider buying a property. 

A good approach is to talk to real estate agents in the areas you’re looking at to get an idea on properties for sale, their value, and other considerations to keep in mind, like transport or schools.

When you start going to open homes, you’ll want to keep detailed notes on what you’ve seen. This will give you something to compare against when you’re looking to make decisions. It’s also worth finding out council rates, body corporate fees (if applicable), and any other mandatory costs for that property (e.g., water rates). 

If a home you viewed sells, make a note of the price, so you can compare that to similar properties you’re looking at – it’ll give you a rough idea of the value of the area, and whether asking prices are higher, lower, or similar to the asking prices.

Once you see something you like, you can check in with your lender to see if they have other conditions to meet for the property, such as obtaining a registered valuation which might be required if your deposit is low. You should also check with your lawyer, who will be able to recommend what other conditions are necessary, or the possibility of making an unconditional offer.

How to make an offer

When you’ve found a place you want to buy, you can make an offer. This will either be through a real estate agent or possibly directly to the seller if it’s a private sale. Auctions are different, but we’ll look at these in the next section.

Your offer will be set out in a sale and purchase agreement, which sets out the property details, the price you're prepared to pay, the proposed settlement day, and any conditions to be met before the sale is finalised. This may be an acceptable building report, financing, along with any other conditions recommended by your lawyer. These agreements are typically based on an approved form from the Auckland District Law Society (ADLS) and Real Estate Institute of New Zealand (REINZ). 

The agreement is legally binding once accepted by you and the seller, so it’s a good idea to get your lawyer to check the document before you. They can also help answer any legal questions you may have at this point.

The offer process can go back and forth a bit, as you and the seller negotiate on price and any specifics, like conditions and settlement dates etc. This usually happens through their real estate agent. 

Once finalised and signed by both you and the seller, a copy of the sale and purchase agreement will also need to go to your home loan specialist. Once all conditions included are met – such as having finance approved – the sale becomes ‘unconditional’. This means you're the successful buyer and you'll own the property once settlement is completed.

Both the amount of and date of paying the deposit are negotiable. Common practice is that the deposit will be 10% of the purchase price, payable once the agreement becomes unconditional. Your lawyer will help manage the payment of your deposit, commonly to the real estate agent representing the seller.

What to know about buying at auction

Buying at auction is a completely different experience to buying a home by making an offer.

We have an article on preparing to buy at an auction, but here are some key points to be aware of with auctions:

• Contact your lender to get your home loan approved beforehand. Your top bid should be the amount they are willing to lend you.
• Have your deposit ready and contact your bank about your transfer limit on auction day to make sure you can pay the deposit if you win.
• Ensure you’ve done your due diligence checks (like insurance, LIM report and building inspection) beforehand, because if you win and the house sells at auction, the sale is unconditional.
• KiwiSaver scheme withdrawals usually take around 10 working days to be processed, meaning you may not be able to use it for the deposit without careful planning. You can discuss with your lender, lawyer, and KiwiSaver scheme provider to plan for this, or put it towards the remaining balance of the purchase price on settlement day.

Structuring your home loan

Home loans come in many forms, and you’re not tied to a single type. Your home loan can be one of the following, or a mix of them. Each type of home loan has different advantages:

• Fixed term home loans can provide increased certainty.
• Floating home loans can provide increased flexibility.
• Offset home loans can help you reduce the amount of interest you pay.

Once you find a structure that works for you, finalise your interest rates, and know what your repayment schedule is, there are only a couple of other things to do before you reach settlement.

Settlement of the purchase

With your home loan structured, you need to confirm your insurance, and sign any remaining documents. A few days before settlement you’ll complete a final inspection of the property, ensuring it’s in the state you expect.

Your settlement date will be set out in the Sale and Purchase Agreement, although can sometimes be negotiated as a different date through your lawyer. The settlement date is when you’ll pay the remainder of the purchase price to the seller and you take possession and get the keys to the property. You’re then officially the owner of your new home.

Some housekeeping considerations

The buying process can be unpredictable. Sometimes it moves quickly, other times it might take some time. If you’re coming towards the end of your pre-approval window and haven’t found a suitable place or are negotiating with a seller, it can be a good idea to contact your lender and see if you can get an extension or be re-approved.

Something that could also affect your final home loan amount compared to your conditional pre-approved amount is your financial situation. After you’ve been pre-approved and in the lead up to buying, it’s best to:

• Avoid taking out new debts, like new credit cards, hire purchase or car loans.
• Keep your savings at their current level or add to them.
• Try to maintain or reduce your existing debt levels, such as your credit card balance.
• Try to keep your day-to-day expenses within your budget and avoid splurging on random items and cut out or down on discretionary spending.
• Maintain or increase your current income.

Any changes in your finances could have an impact on how much your lender is willing to offer you. Keeping your income, expenses and savings stable during this time can help prevent unpleasant surprises.

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This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser.  No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article.
 
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