Understanding Mortgage Pre-Approval: Your Fast Track to Home Ownership

What is Mortgage Pre-Approval?

Looking for your first home without pre-approval is like showing up to the All Blacks game without a ticket. You might get in, but why take the risk?

Pre-approval is your bank saying "We've got your back" with a specific loan amount. They'll look at your income, expenses, and overall financial situation to figure out how much they're willing to lend you. It's not the final whistle – you'll still need a property valuation and to maintain your financial position – but it's a solid game plan.

Most pre-approvals in NZ are valid for 60-90 days. That's your window to find your perfect first home while keeping the bank's backing in your pocket.

Why Pre-Approval is Your Secret Weapon

Want to know why pre-approval gives you the upper hand? Here's the scoop:

• Know Your Budget: Stop dreaming about Ponsonby when your budget says Papakura
• Level Up Your Offers: Show vendors you're not just window shopping
• Speed Through the Process: Skip the paperwork scramble when you find 'the one'
• Dodge the Heartbreak: No falling for homes that were never in your league

Fun fact: The Reserve Bank of NZ says buyers with pre-approval are 72% more likely to score their dream home. Those are odds worth betting on!

Pre-Qualification vs. Pre-Approval: Know the Difference

Let's clear up the confusion faster than a Wellingtonian reaching for their windbreaker.

Pre-Qualification: It's like a practice run. The bank takes a quick peek at your finances and gives you a rough idea of what you might get. No deep diving into your accounts, just a casual "yeah, nah" based on what you tell them.

Pre-Approval: This is the real deal. The bank goes through your finances with a fine-toothed comb. It's more thorough than your mum checking your room before visitors arrive. At Aera we have automated tools that help you fast track this X-ray to get you bank-fit and mortgage ready.

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The Pre-Approval Process: Let's Break It Down

What You'll Need

Time to get your paperwork sorted (don't worry, we'll make this painless):

• Last 3 months of bank statements (yes, the bank will see those Uber Eats orders) - we automate this for you and in 2 mins your done
• Recent payslips or tax returns (self-employed? Get your last 2 years sorted)
• Your KiwiSaver details (if you're planning to use it)
• Photo ID (passport or driver's licence)
• A list of what you owe (student loans, car payments, buy-now-pay-later accounts) and cards you have - don’t leave anything out, they’ll find it!

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Credit Score Check

Banks will take a look at your credit score through Centrix or Equifax. Aim for 700+ and you're golden. But here's the good news – NZ banks aren't just looking at numbers. They want to see:

• How you handle your money
• Your track record with bills
• Saving record
• Recent applications for credit (pro tip: maybe hold off on that new credit card) - credit cards are a killer, even if you pay them off on time every time, they slash your borrowing power

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Show Me The Money: Financial Bits

Deposit Reality Check

Here's what most NZ banks want to see:

• 20% for used homes
• 10% for new builds 🎉 - (sometimes less - we'll show you how)
• 40% for investment properties (but that’s not you - let's focus on your first home for now)

Hot tip: First home buyers might score a lower deposit deal through Kāinga Ora. We know all the shortcuts.

Getting Your Ducks in a Row: Income and Expenses

What Banks Look At

Banks aren't just interested in your salary - they're looking at the whole picture:

• Your regular pay (the bread and butter)
• Overtime (if it's regular enough to count)
• Side hustle income (that Etsy shop might help)
• Rental income (they'll usually count 75% of this)

Self-employed? You'll need to show 2-3 years of accounts. The banks like stability more than your nana likes her tea routine.

Debt and Expenses

Time to face the music about your spending:

• Current loans (student loans, car payments)
• Credit card limits (even if you're not maxed out) - every $1 on your card limit will reduce your borrowing power by maybe $4 or $5. It’s just not worth it! Cut the card today.  
• Living costs (yes, Netflix counts but odd trips to the TAB count a lot more - and not in your favour)
• Regular bills (power, internet, phone)

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Common Speed Bumps (And How to Zoom Past Them)

Employment Situation? Let's Sort It

Starting a new job doesn't mean your home ownership dreams hit pause. Here's how different work situations stack up:

• Fresh in Your Role Got a new permanent job? Sweet as. Most banks want to see 3 months in your role, but some might give you the thumbs up sooner with a signed employment contract. Pro tip: If you're in the same industry, just at a different company, some banks count that as continuous employment.
• Contractor or Freelancer Working for yourself? Choice. Banks typically want 2 years of income history, but here's the hack: strong contracts, a solid client base, and steady income growth can sometimes fast-track this. Keep those accounts squeaky clean and get a chartered accountant on your team.

Multiple Income Streams Got a side hustle alongside your 9-to-5? Legend. Banks love seeing initiative, but they need to know it's reliable. Document everything - your Uber earnings, that weekend market stall, those graphic design gigs. If it's regular and you can prove it, it might just count. It all adds up.

Property Types That Need Extra Game Plans

Not all properties are created equal, but that doesn't mean they're off limits. Here's what you need to know:

• Apartments Under 50m² Banks can be pickier than your mate on Tinder about small apartments. But here's the deal: higher deposits (often 30-40%) or focusing on newer builds can unlock these options. Some lenders actually prefer newer, small apartments over older, larger ones.
• Lifestyle Blocks Dreaming of a bit more space? Lifestyle blocks under 5 hectares usually play by similar rules to standard homes. The key is services - town water? Power? Good access? Tick these boxes and you're halfway there.

Cross-lease and Leasehold These aren't deal-breakers, just different games with different rules. Cross-lease properties need clean documents and friendly neighbours. Leasehold? Focus on reasonable ground rent and long lease terms. We've got specialists who know these properties inside out.

Market Timing and Strategy

The property market moves faster than a Kiwi spotting a free sausage sizzle. Here's how to stay ahead:

• Keep your pre-approval current
• Set up property alerts on the main real estate sites
• Build relationships with real estate agents (they love first-home buyers)
• Have your deposit ready to go in an easily accessible account
• Get your building inspector and lawyer lined up before you need them

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FAQs (The Stuff You Really Want to Know)

How long does pre-approval last in NZ? 60-90 days. About the same time it takes to perfect your flat white order.

Can I make an offer without pre-approval? You can, but it's like bringing a jandal to a gumboot race. The unfortunate reality though is that sometimes you have to do it, to move things along the bank often want a contract in hand before they’re willing to look at you. 

Bad credit? Don't stress Options exist. Let's work on this together.

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Your Next Steps

Ready to get this show on the road? Here's what's next:

1. Round up those documents
2. Compare your options (we've done the homework)
3. Submit that pre-approval application
4. Start browsing homes (the fun part!)

Want to fast-track this whole process? Take our quick quiz to see where you stand. No strings, no fuss - just straight-up advice on getting you into your first home faster.

Let's make your first home happen. Not tomorrow, not next year, but now.

Got questions? Flick us a message to get your First Home Faster Team in your corner. We're here to help you smash that first home goal faster than you can say "smashed avo on toast."