How to Apply for a Home Loan

Home loan application checklist

Before submitting your home loan application, make sure you ask yourself these important questions first.

1. Have I researched and compared all my options?

Don't just apply for the first loan you see. Do your research on what home loan would best suit your home buying situation. Take into account factors like fees, the interest rate and features that apply to the loan.

2. Can I afford to repay the loan?

Lenders will want to see your proof of income to make sure you can actually afford the mortgage repayments. If you're employed, this will include evidence of payslips and proof of employment. We'll cover all the types of documentation you need to apply for a home loan in more detail below.

3. What is my credit rating?

Your credit score is extremely important as it may influence how much a lender is willing to give you as a borrower. Having a low credit score may be viewed by lenders as being a bigger risk as it can indicate your inability to meet repayments.

Before you apply for a home loan, make sure you check your credit rating. You can do this for free through the three main credit reporting agencies: Equifax, Dun&Bradstreet, and Experian.

4. Do I have a strong savings history?

When applying for a home loan, you will need to prove that you don't just spend everything you earn. If you do, you will find it very hard to be accepted for a home loan because the lender will be concerned that you will be unable to meet repayments.

5. Have I saved enough for a deposit?

The more deposit you have saved, the better. While some lenders will lend against a 5% deposit, the ideal amount is 20% or more to strengthen your home loan application and improve your chances of being approved.

Home loan application process

1. What do you need to apply for a home loan?

Applying for a home loan is much easier when you have all the required documents ready to go. The requirements listed below will vary a little depending on the sort of buyer you are.

Identification documents

  • Primary ID: Passport, driver's license, state or territory-issued photo ID card (such as Proof of Age card).
  • Secondary ID: If you can't provide any primary IDs, you can present two forms of secondary ID. These may be your birth certificate, Medicare card, citizenship certificate, utility bills in your name and current address, tax assessment notice, and debit or credit card in your name.

Proof of income

Your proof of income will be a major factor in your loan eligibility. As we have all different sources of income, the documents you provide will vary from person to person and to some extent from lender to lender. They will typically include:

  • If you're an employee, you need to provide two or more of your most recent payslips, employment contract or a letter from your employer containing the details of your employment such as salary, length of employment, etc. You can also present three months worth of bank statements which prove your income.
  • If you're self-employed, you will need to present two years worth of business and personal tax returns and Australian Tax Office (ATO) assessments from the last two years.
  • If you earn income from a rental property, you need to provide a letter from your real estate agent confirming your rental income. You will also need to provide a copy of your current Residential Tenancy Agreement and bank statements that indicate the rent payments.
  • Other sources of income can be your dividends, superannuation, foreign income or other government income sources.

Assets and liabilities

A lender will also want to see your assets and liabilities to get a clearer picture of your full financial position. Put simply, assets are anything you own (cars, share investments, term deposits, etc), while liabilities are anything you owe (credit card debt, other ongoing loan repayments).

Extra documents

These documents will vary depending on the type of buyer you are.

If you are a first-home buyer, you may be able to benefit from the First Home Owner Grant. If so, ensure your First Home Owner Grant application is completed.

If you're applying for a home loan with a guarantor, your guarantor will need to provide all documentation for their identification, income, assets and liabilities.

If you already have insurance on the property, you will want to provide a copy of the insurance policy.

2. Pre-qualify

Before you even start checking out the online property advertisements, you should pre-qualify with a lender to get a general idea of how much you might be able to borrow based on your income.

With loans.com.au you can do this by filling out a short online form which takes a couple of minutes. You will get an onscreen answer plus an email. Remember that you haven't spoken with a lending specialist at this stage, or submitted an application, so this is just the first step towards finding out what you can actually borrow.

3. Preliminary approval

You don't need to have a property in mind before you apply for a loan. It is a good idea to start your application before you even begin inspecting properties. Then, you can progress through the approvals stages, each of which saves you time once you come to finally purchase the property.

To get preliminary approval from loans.com.au, you just need a 20-40 minute phone call with one of our lending specialists, during which time an application will be submitted to the lending manager. No supporting documents are submitted at this stage. You will receive an email confirming preliminary approval subject to us receiving supporting documents that confirm the financial information you have supplied.

Preliminary approval indicates that you have a good prospect of being approved for a home loan up to a specified dollar limit. Preliminary approval isn't a guarantee you will be approved for a loan, however, once you've received preliminary approval for a home loan, you can do some realistic house hunting.

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4. Conditional approval

For your loan application to progress past preliminary approval, you will need to provide documentation on your assets, income, expenses and liabilities. The lender will conduct a credit check to assess your credit record.

They will look at your ability to borrow funds and service the debt. If you are successful, you will then receive conditional approval. This is still subject to a property valuation and no changes in your financial circumstances.

5. Property valuation

After conditional approval (also known as pre-approval) has been granted, the lender will get a valuation of the property you wish to buy. The bank has to make sure your home loan is not too large compared to the value of the property. This is because the home becomes collateral for the home loan.

6. Lenders Mortgage Insurance (LMI)

Depending on the size of your deposit, you may be required to pay LMI. If your loan to value ratio (LVR) is over 80%, the application will then be passed on to a mortgage insurer and is subject to further credit checks.

7. Final approval

Final approval is when the lender has everything they need and can confirm they are willing to approve your loan. If so, they will issue a letter confirming their approval.

If your home loan application is more complex or you haven't provided all the necessary documentation, there may be a bit of back and forth with the lender before they can finalise approval.

8. Loan offer issued

Once you have been unconditionally approved for the loan, your loan offer will be issued to you. Typically, the lender will send you the loan contract that you will need to sign to accept their offer. You can go through this contract with a solicitor if you want to receive legal advice.

Once you've signed off on the contract, return it to the lender as soon as possible with any requirements needed to settle the loan. The sooner you do this, the fewer delays at settlement.

9. Settlement

Congratulations! You've reached the settlement stage. The settlement stage is where all the financial and legal loose ends are tied up, and the property ownership is transferred from one owner to another.

These meetings typically occur between the representatives of the buyers and sellers, so you don't normally need to attend. The settlement agent will typically meet with your lender and the seller's representatives to review, exchange and sign all the documents.

The bank then withdraws the money from the buyer's nominated account and pays the seller.

The title office then receives the signed documents and registers the new owner of the property (you!). After settlement occurs, you can pick up the keys to your new home. A month after settlement is when you will typically begin making your home loan repayments.

Review your home loan

Once you've got your home loan, it's important to conduct regular 'health check-ups' to make sure you're still getting a good deal. Every 12-18 months you should review your home loan and compare it with other products on offer. If you think you're getting a raw deal on your home loan, it might be time to refinance.

At loans.com.au we are proud to offer one of the most competitive interest rates in Australia for customers who wish to refinance. We have created FastTrax Refi to make refinancing a mortgage quicker and more efficient.

Learn more about our refinancing process here or book an appointment with a Lending Specialist.

 
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