Mortgages
11 min read
Mortgage brokers are your link to the bank.
They’re the person in the know, who’s going to put your application together and give you the absolute best shot at getting a “yes”.
But to do that they need to have a full picture of your financial situation. This means not just your current situation, but everything you are committed to.
I get it. We’re all human and sometimes people forget, or don’t know what to tell your mortgage broker.
That’s why in this article, you’ll learn exactly what you need to tell your mortgage broker … and some examples of what other people have left off.
If you have any questions or thoughts, please leave them in the comments section below.
One mistake would-be investors often make is they forget to put an unused credit card on their mortgage application.
They either forget about it, or think it doesn’t matter. Big mistake.
Because, even a single credit card will impact how much you can borrow … even if it stays in your wallet and you never use it. Why?
Because the bank has to assume the worst-case scenario. That means they’ll assess your mortgage application as if you have already maxed out your $10,000 credit card (for example) and are making minimum payment on this amount.
That doesn’t mean that credit cards are universally bad. It just means you need to disclose all of them on your mortgage application.
What’s the harm in not telling your mortgage broker? Whether you put it on your mortgage application or not, the bank will probably still see that you have one.
That’s because it will likely show on your credit report, which the bank orders.
According to Opes Mortgages managing director Peter Norris “non-disclosure” (not telling the bank something) is hard to come back from.
Because, what else haven’t you told them?
On top of this, let’s say you have an unused credit card, and once the bank picks it up and factors it in, you can’t afford the lending. What’s the harm?
Well, if you’d told your mortgage broker in the first place, they could have advised you to cancel or reduce your credit card to get your mortgage approved (for example).
Now the bank has said “no”. And once they do, it’s hard to change their mind.
Debt you’re committed to (but haven’t taken on yet) is just as important as debt you already have.
One investor who worked with Ella Dromgool – from Opes Mortgages – forgot to mention that they had committed to buying a business, from which she was borrowing the money to buy.
What’s the issue there?
This investor was preparing to go unconditional on a New Build property, which was due for completion in 18 months.
In this case, the broker would usually give an indication that the investor could afford the property. Then they would apply for lending again in 12 months time.
But, once the investor took on debt to buy the business, she wouldn’t be in the position to get the new lending.
In this situation, there was a big risk that the investor committed to buying the property, but wouldn’t be able to get the money to pay for it.
This means she could have lost her 10% deposit, which was about $90,000.
Another big one is if you already have another property under contract, but it has yet to settle. For instance, if construction is underway for a New Build property and you are looking to buy another one before it settles.
This is an example of debt that you are committed to, but haven’t drawn down yet.
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Book your free sessionWhen a mortgage broker asks you how much you earn, you should always tell them your legal *documented* income.
That means the income that you actually have a contract for (if you are an employee).
For example, Ella was working with a pair of investors. The female partner in the relationship said she earned $25,000 a year.
Ella then ran her calculations on that basis, and it looked like the couple could afford to purchase an investment property.
After the mortgage application was submitted, the bank approved it. But, the lender required proof of income (which is standard).
So Ella asked the investors to send their employment contracts to the bank.
It turns out that this investor is paid ‘under-the-table’, to evade tax (which is illegal).
If we forget the moral issues for a moment, this meant the investor didn’t have an employment contract. This meant, because she was being paid under the table, she couldn’t use this income to support the mortgage application.
The application would have to be done based on only one partner’s income.
What’s the harm in this? This couple wasted a lot of time, because they were looking at properties that they couldn’t get the bank finance for. And the couple got financial advice that wasn’t right for their situation.
Had they disclosed the source of the income, Ella could have come up with a different plan and a way to achieve their financial goals based on their actual situation.
Business owners also fall into this trap. Another investor wrote that their income was $200,000. Once the adviser dived into this a little further, it turned out this was the business’s revenue, not its profit.
This means that this investor couldn’t actually use $200k as his income in his mortgage application. He wasn’t taking that amount home.
Again, the impact is that the investor receives advice based on a fictional financial situation. This is a waste of both the investor and the mortgage broker’s time.
So, make sure you give your mortgage adviser your documented income.
A personal loan will also have an impact on your mortgage application. This is because the lenders scrutinise your incoming (salary) vs outgoings (e.g. debts).
When you apply for a loan, the bank will take all of your debts into account and judge whether or not you’ll be able to pay off all your current debt … as well as the payments for a new mortgage.
What’s the harm of not telling your mortgage broker?
It’s the same story as with your credit cards.
Your bank will pick this up on your credit report. The two effects are:
1) The bank start to wonder what else you haven’t told them
2) You might not be able to afford the mortgage once the personal loan is taken into account.
But now that the bank has said “no”, it becomes hard to change their mind.
But perhaps your broker could have found a way for you to still afford the mortgage.
When thinking about personal loans, also don’t forget debt consolidation loans and car loans.
A lot of Kiwis will buy big ticket items on hire purchase. For example, a couple might buy a $15,000 lounge suite from Harvey Norman on 48 months interest-free.
That way, they have 4 years to pay the store back.
But, like other financial commitments that you’ve had for a while, it can sometimes be hard to remember what payments and debts you are still committed to.
This is why many would-be Kiwi borrowers will forget to tell their mortgage brokers about hire purchases they are still paying off.
What’s the harm here if you forget to mention a hire purchase loan?
The bank will pick up the payments you’re regularly making when they review your bank statements. They’ll literally see the payment going out and ask what this is for.
Automatic payments won’t be missed by the bank, so don’t forget to mention them in the first instance to your broker.
It can also be picked up on your credit report.
Same issue as before. Banks wonder what else you’re not telling them.
And it might look like you can’t afford the mortgage once the hire purchase is included.
If you’d told your mortgage broker early, perhaps they could have found a way to get the lending over the line. Now, it’s too late.
You need to tell your mortgage adviser about all (and any) Buy Now, Pay Later facilities you have e.g. Laybuy, Oxipay and PartPay, Zip, Humm.
That’s not just whether you have a current purchase you’re paying off but also any that you have made any payments to over the last 3 months.
Why? The impact of an Afterpay payment can be significant.
They can make it harder for young New Zealanders to get into the housing market. And in some instances, you can borrow up to $70,000 more if you don’t have an Afterpay.
Remember, banks must be extra, super-duper confident that you could still afford the mortgage even with a higher interest rate, and if you’ve maxed out all credit facilities.
And the way they check affordability is by poring over your bank statements.
But then, let's say the bank sees a $50-a-week Afterpay payment going out of your account, that’s due to finish in 3 weeks.
The bank won’t say: “Ah, that's payments going to be gone in 3 weeks, so let’s include that as income that could be used to pay the mortgage.”
Instead, they‘ll look at those payments as if they’ll continue forever. That might sound unfair (and it is) but the bank can’t guarantee you won’t spend the credit again once you’ve finished your repayments.
The bank is going to pick this up when they review your bank statements. So the same rules apply: Tell your mortgage broker up front.
They will front foot any conversations with the bank and give your mortgage application the best shot at being approved.
A revolving credit is a powerful tool that will help you pay down your mortgage more quickly.
But don’t forget to mention it, as a part of your overall debt when applying for a mortgage. Even if it is unused.
A mortgage broker I spoke to said this was the No.1 most common debt investors forgot to disclose.
Given the fact that revolving credits are popular with investors … this is a big one.
And just like credit cards, and overdrafts, disclosing the debt means the whole amount, not just the amount you’ve got left to pay.
Why? Again, just like a credit card, a revolving credit mortgage lets you draw to the credit limit as many times as you want and can keep doing that as long as you keep paying your balance down.
So, the bank has to assume that even though you may have paid off $10,000 of your $50,000 revolving credit – you could potentially take out $40,000 overnight.
Yup, we hear you … how is it my mortgage broker’s business to know when I am planning to have a baby?
As odd as it may sound, it is.
Big changes in personal circumstances can be particularly important if you are buying a new build property. This is because when you buy off-the-plans the construction period is often longer than your finance pre-approval period.
What does that even mean? Well, you as the purchaser have to confirm and go unconditional on the contract before the property is built.
Prior to going unconditional, you’ll get a pre-approval from the bank for your mortgage. This means the bank has assessed your application and said: “Yup, so long as your situation doesn’t change in the next 12 months, will approve this mortgage in 12 months.”
But most construction periods run longer than the pre-approval, which means an investor will sometimes need to reapply for finance when it comes to settling.
Here lies the risk: “What if I can’t get my finance re-approved?”
Generally, this risk is only really felt by investors whose life circumstances are about to change. For instance:
These changes in circumstances might mean the bank changes its mind about approving your mortgage, and then you’ve got a property you don’t have a mortgage for.
That means you could lose your deposit. Which could mean parting with up to $100,000 (and the opportunity to own a great investment property).
This is why your mortgage broker will sometimes ask you if you have any big life events up-and-coming, including a baby.
Mortgage brokers will often tell you: “It’s always a good idea to tell your mortgage broker everything.”
Not because everything is going to be necessary.
But because they are in the best position to make the call as to what they will disclose to the bank or not.
Peter Norris, from Opes Mortgages, says non-disclosure is really hard to come back from.
“If the bank feels like something is not being disclosed then it’s hard to rectify – even if it’s an accident,” he says.
Unfortunately a deceit, whether intended or not, is extremely hard to come back from – in the bank’s eyes. They will (rightly or wrongly) label you as dishonest and that is very hard to repair.
Which can put a halt on any of your property plans.
Mortgage broker for over 10 years, property investor and Managing Director at Opes Mortgages
Peter Norris, a certified mortgage adviser with 10+ years of experience, serves as the Managing Director at Opes Mortgages. Having facilitated over $1.2 billion in lending for 2000+ clients, Peter is a respected authority in property financing. He's a frequent writer for Informed Investor Magazine and Property Investor Magazine, while also being recognized as BNZ Mortgage Adviser of the Year in 2018 and listed among NZ Adviser's top advisers in 2022, showcasing his expertise.
