Prepare so bank says yes

Existing loans and unconsented buildings are reasons bank decline loan applications. Photo / Getty Images

Home buyers are often like the proverbial square peg in a round hole when it comes to borrowing from the bank. The buyer may be 100 per cent certain of being able to pay the mortgage. But for a number of reasons, the bank may not be keen to lend.

Real estate agent Antonia Baker of The Property Market dealt with one such example in Auckland's New Lynn recently. The vendors had bought another property unconditionally so they had a tight deadline for selling.

Baker persuaded the vendors to allow buyers to pay a smaller $10,000 deposit on the day of the auction and then make up the balance of a 10 per cent deposit within the following 10 working days.

The KiwiSaver HomeStart grant and withdrawals cannot be used as a deposit. Typically KiwiSaver money is released on settlement. The small, up front deposit then became the focus of the advertising campaign and the property was marketed under the headline "KiwiSaver friendly deposit options available".

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A common obstacle to getting a mortgage, says broker Wayne Lawrie of Mortgage Studio, is student loan repayments. The student loan repayments reduce the available income to pay a mortgage and are taken into account in the bank's "debt service ratio".

Lawrie points out that the monthly repayments on a student loan are the same whether the graduate has a $5000 loan or a $50,000 one.

"Student loans are interest-free, but they impact your debt servicing," he says.

In these cases Lawrie arranges for the buyer to refinance their student loan over a longer period, reducing monthly outgoings and getting them over the debt servicing line for a mortgage. The need to pay interest on the refinanced student loan is outweighed by the ability to buy a home.

Another common problem is where the outline of the dwelling on the flat plan isn't consistent with the actual buildings on a cross leased property, says Lawrie. If the bank catches wind of this, it may refuse to lend because of the defect of title.

In a recent case, the vendor had built a wood shed against the home and the
bank said a resounding "no" to lending.

In order to get the deal over the line the vendor agreed to demolish the wood shed.

Baker had a similar case where there was an 11.5sq m illegal sleepout at the property.

The vendor's solicitor put a clause in the agreement that if the purchaser required; 11.5sq m of the structure would be demolished by settlement to make the sleepout legal. A lawyer bought the property and was able to get finance without executing the clause.

Another common obstacle is investors attempting to sell tenanted properties to first home buyers, which propels the latter into the investor category, meaning a higher deposit is needed. Baker recommends the investor wait until the end of the fixed term tenancy.