Home Loan Pre-Approval Letter of Offer

You now know how much you can spend on your home. You found out by answering all those questions about you, your income, your job history, and how you manage your money with your Mortgage Adviser. This is what they’ve been working on. They have been going back and forth between you and the Mortgage Broker team at the bank.

Most banks and lenders will, at the least, require info about the property you’re buying. They need it before confirming the home loan. There are other important parts of the letter that it helps to familiarise yourself with as well.

Working with a Mortgage Adviser makes getting a pre-approval super easy. We manage your pre-approval step by step. Bank rules and policy often change. Your circumstances may change too. We’ll navigate how these might affect your pre-approval.

Below are 6 things you need to know about your mortgage pre-approval Letter of Offer:

• Expiry date:

The most important thing to remember. How long the approval letter is valid for. There is no use going through the pre-approval process if you don’t plan to buy a house until 12-months’ time. Conditional approval usually lasts for 3-months or 90 days. We can easily extend this, or ‘roll this over’ for another 90 days if you haven’t found a house in this time. We’ll confirm that there has been no significant change to your financial circumstance, think changing careers or taken out any new loans. We will remind you of the expiry date if you’re still house hunting near to the end of the offer letters expiry.

• Interest Rates (And Why are They So High?):

Loan offers must show how much you will pay. They use the non-discounted floating interest rate. These are not the actual rates you will pay on your loan (unless you don’t want a discount). The bank or lender inserts these rates on the offer letter. They show what the repayments would be at that rate. It’s not an interest rate offer. Closer to the settlement day, we negotiate the best interest rates available. We also negotiate a cash contribution, known as a ‘cashback’.

The bank can only offer rates once you get closer to settlement. This is because there is a limited length of time they will hold them, without having a customer paying for them. The same is true for a cash contribution. Banks don’t often put these on an offer letter because the promotions can change.

• What is The Priority Amount?

Some banks note the priority amount on the letter of offer. It mentions a section 92 priority amount. It is always more than the mortgage amount, usually around 1.5 times higher. It can be a surprise for offer recipients. No you can’t buy a house for this amount! The priority is “the greatest amount the bank has priority over any next (second) mortgage”. This makes it very difficult to raise a second mortgage against the property. Don’t worry about the priority amount unless you want a second mortgage.

• Specific Conditions:

This is an important section of the letter of offer. You should carefully read all the conditions. Then, start gathering them as soon as possible. We will help you with this.

The conditions can be anything but are usually:

1. You have to provide a signed and dated sale and purchase agreement. Or, if you are applying to bid at auction, a draft auction agreement. It’s good to match the ownership entity with that on your loan offer letter. For example, if you want your family trust to own this property, the home loan should be in this name.
2. Registered Valuation Report (or RVR). The bank requires a RVR when buying a new-build, you are building a house, or you have less than 20 percent deposit. We organise this on your behalf. Banks won’t accept your own registered valuation.
3. Copy of the Title and Code of Compliance Certificate (CCC). The title is the legal description of the land the property is on, along with a record of who owns it. You must have the CCC if you are building or renovating. The local council issues it. It shows that the building meets all the required minimum standards.
4. Confirmation of insurance on the property. You need to confirm that you can insure the property and that the property is insurable. There are many reasons why this may not be possible. Unconsented works and houses in high-earthquake zones can cause problems and delays.
5. The closure or reduction of any credit card limits, overdraft or buy-now-pay-later facilities that were discussed during the application process. We will need confirmation of repayment and closure. This will show your affordability for the new mortgage.
6. Confirmation of KiwiSaver contribution reduction. Your contributions to KiwiSaver are building your retirement nest egg. Unfortunately, they are noted as less money you’ll have available to repay a mortgage. We often discuss lowering your contributions to the 3% minimum. This is to focus on your mortgage for a time. The bank or lender may need a payslip to evidence this.

• Life and Health Insurance

The bank can’t demand this. But it may list it as a condition: that you buy life and health insurance from this bank. In fact, this is never recommended with any bank. In other words, a bank can’t deny you a mortgage just because you don’t take their insurance. You definitely should get insurance to protect yourself. But it’s crucial to ensure it’s the right policy for you prepared by an expert. We get this sorted for you early in the process, so you’re protected from settlement day.

• Acceptance

Some banks include a section in their offers to sign. You sign at the end to confirm that you want the mortgage. There is no need to sign this. Your Mortgage Adviser will work with you to have all the conditions ticked off. We then discuss your mortgage structure. We talk about interest rates, repayment frequency, and incentives like a ‘cashback’. After this meeting, you will sign the final Letter of Offer or a loan structure document with your Adviser.

Summary

The offer letter is the start of your home or investment property purchase or refinance. Getting pre-approved before you start house shopping is smoother. It is also less stressful for everyone. You’ll now have a clear idea of how much you can afford. Avoid the disappointment of having an offer accepted, only to be told that you can’t afford your dream home.

Read the letter of offer and make sure you understand what the next steps are. If in doubt, get in touch. We’ll connect you with a great conveyancer or Solicitor now. They will guide you through the offer letter and summarise this to you in an email.

When you start house hunting be sure to let Real Estate Agents know you’re pre-approved. But not for how much. Having pre-approval makes your offer stronger and less likely to fall through. We’ll often give Agents an overview of your position. It will show that you’re in a strong position to buy.

Contact our expert Mortgage Advisers today. We will help you start the mortgage pre-approval process, so you know your budget upfront. We’re dedicated to guiding clients through the entire home loan process. We then help you grow and protect you and your family’s lifetime wealth. Our philosophy is ‘client for life’.