Are the legal obligations of borrowing money the same for all banks, houses and borrowers?

When borrowing money to buy a house there is a lot of documentation, which will change depending on the house you’re buying, who you’re borrowing money with and how much you need to save before you can get lending. The money you borrow is secured against the property you’re buying so it’s important to work with Your Legal to best understand what your legal obligations and the risks are before you borrow.

What does being financially pre-approved to buy a house mean?

A pre-approval is there to help you to know how much you can borrow and what price bracket of house you are able to shop in. This is something that your mortgage advisor or bank will walk you through. 

Pre-approval doesn’t mean you’ll automatically get the finance as it will depend on the property, and its value. So make sure you contact your lender or mortgage adviser about the house you’re looking at buying before you make an offer.

What does insurance have to do with borrowing money?

Your lender will want to make sure that the property is insured before they advance you the money on settlement day. This is usually needed before settlement day (the day you officially own the house) and is a requirement that is best confirmed before you go unconditional. 

Do I need to have a deposit?

Lenders usually require 20% of the value of the house as part of their lending criteria – although there are lenders and programs that don't require as great a deposit (for example the Governments Welcome Home loan package). 

Usually, your deposit is held in your bank account. Alternatively, it may be tied up in your KiwiSaver or be a gift\loan from family. It could even be a combination of the three. 

How much do I pay for the deposit?

The Vendor will usually want a 10% deposit, although the amount is negotiable. Our advice is that you discuss how much deposit you can pay with the agent. Also be sure to let them know if KiwiSaver is being used to pay the deposit, whether that be for the whole deposit or in addition to your cash, as special rules apply when handling KiwiSaver funds between withdrawal and the settlement date.

If you have a cash deposit it is usually paid to the Real Estate Agents trust account and is payable when the agreement is confirmed as unconditional.

When does the money from the bank get transferred?

When it comes to receiving the mortgage money from the bank, it typically happens at the closing stage of the homebuying process. After you've gone through the  journey of finding your perfect home, negotiating the terms, and completing all the necessary paperwork, it's time to finalise the deal. At the closing, you'll sign the final documents, including the mortgage agreement. Once everything is squared away, the bank will release the funds.

So your loan is drawn down on the day of settlement.

A few things to consider:

Your deposit is expected to be transferred to the law firm's trust account well in advanced of the settlement day.

Your Legal can help you arrange for any KiwiSaver balance contribution to be utilised for the property purchase

You'll need to arrange the transfer of any additional cash contributions to Your Legal's trust account at least a few days before the settlement date.

We help you by arranging for your bank loan, any KiwiSaver balance/cash contributions held in our firm's trust to be transferred to complete the purchase of your new home.