Buying guide

How to get pre-approval for a home loan in New Zealand

Let’s break this down.

Last updated: 2 May 2023

What you’ll learn:

  • What does pre-approval mean
  • How to improve your chances of getting pre-approval on a home loan
  • Common conditions for home loans in NZ
  • The documents you need for a home loan application

Of the many stages involved in buying a house in New Zealand, getting pre-approval for a home loan is one of the most important. If you can’t get past this hurdle, you’re essentially stuck.

But what does pre-approval for a home loan mean? Is it the same as a mortgage application? And how do you go about getting it? Here’s your one-stop-shop for answering all of these questions and more.

What is home loan pre-approval

Being pre-approved for a home loan means that, as long as you meet certain criteria, a lender is prepared to loan you money, up to a certain specified sum. In other words, based on their assessment of you and your finances (more on this below) the lender is telling you your purchasing power for buying property.

You’ll often see the words ‘home loan application’ and ‘mortgage application’ used interchangeably. There are, however, subtle differences. A home loan is the money you’ve borrowed from the lender, that you’ll gradually pay back over time. By contrast, a mortgage is the security you’ll provide the lender for this loan. Usually, this security is the home itself. So, if you were to fail to keep up your home loan repayments, the lender might, as a last resort, sell the home to recoup the money you owe them.

Who provides home loans in New Zealand?

Banks are the most common providers of home loans in New Zealand. Importantly, each bank has its own lending criteria, which means the same applicant could be denied by one lender but approved by another. There are a number of different home loan options available to you.

So, when you’re looking to get pre-approved for your home loan, it’s really important that you shop around and do your research. However, you shouldn’t just look at where you think you’re most likely to get pre-approval. Even more important for your longer-term financial future is ensuring you get the right home loan structure and rates – getting this right can save you thousands of dollars.

If you’re feeling daunted at the prospect of having to get all of this right, you could opt to use the services of a mortgage broker. These professionals will do the leg work for you by comparing the rates and structures offered by different lenders to help you get the best deal. Using a mortgage broker will also mean you only have to fill out one application form, rather than creating a new one for each lender.

While mortgage brokers are usually free, it’s worth taking your time to select the right one, if you do go this route. As well as checking out their credentials and any online reviews of their services, it’s also important to be aware that many mortgage brokers earn their fees from lenders themselves. This could mean the broker is steering you towards a more expensive loan, as this will earn them a higher commission from the person paying their fees.

There are several different home loan options available in Aotearoa New Zealand.

How to get pre-approved for a home loan in New Zealand

Okay, with all of this background to home loans under our belts, it’s time to look at how to increase your chances of getting a big, fat yes to your pre-approval application.

1. Grow your deposit

At its core, getting pre-approval is all about the lender having confidence in your finances. While there are multiple elements to this, the size of your deposit is something the assessor will definitely be looking at.

This is one indication of your competency as a saver, demonstrating that you’re able to put money aside after you’ve paid for the expenses of your everyday life.. From the lender’s perspective, the fact that you’ve been able to put this money away is a good indicator that you’ll be able to meet regular repayments on your home loan once you buy. With this in mind, the larger the deposit you have, the more appealing a home loan applicant you are.

2. Decrease your debts

The bank will also take a close interest in any outstanding debts you have in your name. You should ensure that you pay any credit card debt in full each month and get rid of any short term debt. For example, with credit card debts, if you aren’t paying this off in full, the lender will allocate a portion of your income to service this, and reduce the amount they’re prepared to lend you accordingly.

3. Clear up your credit

A credit check is part of a normal home loan application in New Zealand. In particular, banks will be on the lookout for:

  • Payment defaults.
  • Outstanding defaults.
  • How many times you’ve sought credit.
  • The names of the organisations you’ve sought credit from.

Why are they interested in this? Again, it comes down to the lender trying to predict your future financial behaviour based on what it’s been like in the past. If you’ve regularly defaulted, you seem like a riskier proposition to lend money to compared with someone who hasn’t.

As well as ensuring that you’ve paid off any outstanding defaults (banks won’t typically consider your application if you still have any), you’ll also need to be able to explain any previously paid defaults.

Our advice is to get an independent credit check before submitting your home loan application. This can help you identify and solve any potential problem areas before applying.

4. Keep on saving

The bank will want to take a look at how you balance your income and your expenses. Often, they will do this by using mathematical formulae based on how many people are applying and their dependents (i.e. children or ill or elderly relatives who need care). What they want to see is that, once your expenses have gone out, that you’re still putting some money aside into savings.

They’ll also take an interest in how well you manage your bank account. Are you dipping into unauthorised overdrafts, or do you have dishonours against your name? A dishonour is when you have insufficient funds in your account to make a payment.

Showing the bank that you're able to put money aside into savings is key to getting pre-approval.

5. Stay employed

Unsurprisingly, banks will be more inclined to loan to someone with a stable employment history than someone with frequent, large gaps in their job history. Ideally, chopping and changing between jobs really frequently should be avoided, but that’s not to say that you shouldn’t change roles if a dream job comes up.

6. Prepare a budget

It’s a good idea to draw up a budget that you can submit to the bank at the same time as your home loan application. As well as helping the assessor out by providing an overview of your financial situation, this document can fulfil a particularly important role by demonstrating how you plan to save the difference between your current rent and the proposed mortgage repayments by detailing where you plan to cut back on spending.

What documents do you need for home loan pre-approval?

To apply for a home loan in NZ, you’ll need the following documents:

  • Your ID: a passport or driving licence.
  • Proof of address: typically a bank statement or utility bill in your name.
  • Bank statements: most lenders will want to see the three most recent months’ statements from your current account.
  • Income evidence: payslips or a company of your employment contract. If you’re self-employed, you should give your end-of-year financial statements.
  • Evidence of your deposit: this could be a confirmation of your withdrawal from your KiwiSaver or a bank statement.

If you’re applying for pre-approval for a loan for your first home, in addition to the above, you’ll also need to provide:

  • A letter from your employer confirming your employment.
  • Your three most recent, consecutive payslips.
  • Evidence of your NZ citizenship or residency.
  • Six months of bank statements and three months of credit card statements
  • If you’re self-employed, financial accounts for year end prepared by your accountant.

You'll need to get some documents together to apply for pre-approval hor a home loan.

What are the common conditions on a home-loan pre-approval?

Remember, a home loan pre-approval is confirmation that you might be able to borrow up to a specified sum, as long as you meet specified conditions. So, what are these conditions likely to be?

Usually, the most important thing here is the validity period. A pre-approved home loan offer is only valid for a limited period. In NZ, this is typically three months. This means you have to finalise the property within this period, or you'll have to have your home loan application reappraised, which involves paying a nominal cost.

Other home loan conditions are usually to do with the property you’re wanting to purchase falling within the legal and technical due diligence requirements specified by the lender. For example, a bank might not disburse a home loan for a property where the ownership structure doesn’t comply with the lender’s norms.

As home loan conditions vary between lenders, and sometimes between applicants, it’s vital that you understand each fully before proceeding with a given loan.


Al Hall
Al Hall

Al Hall is a regular contributor at Trade Me Jobs and Trade Me Property. He’s dedicated to helping people succeed in their aspirations to find their dream job and place to live.