Applying for a home loan is the process of securing finance from a lender to purchase a property. In this guide you’ll learn how the home loan application process works and what you can do to increase the chances of getting approved.
Before you apply for a home loan, make sure you:
Ready to apply for a home loan? It’s a good idea to prepare everything you need for your home loan application in advance to make sure the process goes as smoothly as possible.
To apply for a home loan, you will need to:
Before you look at a single property you need to get home loan pre-approval. Home loan pre-approval is essentially an indication from a lender that they will lend you a certain amount of money based on the information provided.
Pre-approval is an important part of the home loan application process - it ensures you can provide sufficient documentation to meet lender approval criteria, and will also provide an idea of how much you can borrow to buy a property.
Applying for home loan pre-approval is the first step towards securing a new home loan and buying a home. To get pre-approval you’ll need to:
Once the lender receives your application, they’ll assess the information and supporting documentation.
When applying for a home loan, you’ll need to provide a lender with sufficient supporting documentation. These are used to prove your identity, income and level of debt, and allow a lender to assess your ability to meet home loan repayments. Supporting documentation for a home loan application may include:
Proof of identity is a crucial part of the home loan application process. To reduce fraud, the Australian Government uses a 100-point personal identification system. Each type of identification is assigned a certain number of points, and borrowers must provide documents that equal at least 100 points to prove their identity when applying for a home loan.
|Primary documents (75 points)||Secondary (40 points)||Secondary (35 points)||Secondary (25 points)|
Birth certificate Passport Citizenship certificate
Australian driver licence ID card issued to public employees Student ID
Council rates notice Document from an employer Mortgage documents
Medicare card EFTPOS card Foreign driver licence Marriage certificate
Proof of income and employment is provided to lenders so they can accurately assess your ability to meet home loan repayments. Each lender may request specific documents to support your application, but this will generally include:
Your lender will take your level of debt into account when considering your application, and as such you should include proof of your debt when you apply including:
If you have other assets your bank may look upon your application more favourably. Include proof if you have:
If you’re self-employed you may not have a tax return, payslips or employment contracts to prove your income. Instead, you may apply for a low doc loan, which requires less supporting documentation than a normal home loan.
To apply you may still have to provide:
Low doc loans aren’t all the same - different lenders will require different levels of proof before they lend to you.
If you’ve got bad credit you may need to supply additional supporting evidence to prove to your lender that you are able to make mortgage repayments. This might include any proof that you’ve:
If you’ve got bad credit it may be best to approach a mortgage broker, or specialist bad credit lender as they’ll be more likely to approve your loan application.
There are four types of lenders you should consider when applying for a home loan, including:
Each lender has its advantages and disadvantages and ultimately it’s up to you to decide which is best for you.
|Home Loan Lender||Pros||Cons|
Well known brand You may be familiar with their products and services
Limited to only products they offer Conservative when assessing low doc or low deposit loan applications
Convenient They’ll take care of most of the application process Access to the products of several lenders Tailored expert advice Often fully online service Free service for clients
Could be biased toward certain financial institutions or products May not have access to all lenders
May have lower interest rates and fees Personalised and local service
Smaller with a limited physical presence Fewer products than big banks
Specialise in certain loan types like low doc, or low deposit loans Less strict credit requirements than big banks Personalised Mostly online service
Cannot provide savings or transaction accounts Limited branch and physical presence Not regulated by APRA
A bank is a business that is licensed as an Authorised Deposit-Taking Institution (ADI) through Australia’s financial regulator - the Australian Prudential Regulation Authority. A few of the most well-known banks in Australia include:
A mortgage broker is an intermediary between you and other lenders, including banks, non-banks and credit unions. They act on your behalf and in your interest to help you prepare and submit your home loan application, and may also negotiate with lenders to secure a suitable home loan.
Mortgage brokers will also provide advice tailored to your situation and assist with:
Credit unions, otherwise known as mutual banks, are banks that are owned by their customers. They operate for the purpose of providing banking services to their members, rather than to generate shareholder returns and profits like retail banks.
When customers use a credit union they become members. Instead of using profits to issue dividends to shareholders, credit unions use their profits to offer benefits to their members.
Non-bank lenders are financial institutions without an ADI license. They function similarly to banks and can still offer home loans and other financial products.
If your home loan application is denied don’t reapply straight away. Take some time to find out why you were unsuccessful so that you can improve your application next time.
The easiest way to find out why your application was denied is to simply ask your lender. Once you know what the problem is, you’re ready to solve it.
Having your application denied is frustrating but there’s plenty that you can do to improve it for next time:
If you do get your application denied, don’t re-apply straight away. Take 3-12 months to get your finances in order then re-apply when you’re in better financial shape.
If your first unsuccessful application was with a major bank, it may be a good idea to try working with a mortgage broker, or specialist non-bank lender for your next application. Mortgage brokers can help improve your application and negotiate with lenders, while smaller non-bank lenders may have less-strict credit requirements.
Unconditional approval is the final stage in the home loan process. At this stage, your bank has formally reviewed your application and supporting documents and confirmed that they will lend you a certain amount to buy the property.
To secure unconditional home loan approval you’ll need to:
At this stage, your lender will review the property you’ve chosen as well as your documentation. They may also:
Once the lender is satisfied they will send you or your broker a formal loan offer and loan offer documents for you to review and sign.
Congratulations! You’ve secured a home loan and you’re ready for settlement.
Settlement day can be daunting, but it needn’t be. Make sure you’ve ticked all the boxes in advance so that you’re prepared:
On the day before settlement, you’ll also have to complete a final inspection of the property to make sure everything’s in order before the purchase is completed. Once you’ve completed the final inspection you’re ready to settle and take ownership of the property.
Use the stamp duty calculator to estimate stamp duty on properties in Australia.
At this stage, your lender draws down your loan to pay the vendor and you pay stamp duty. Then the title to the property will be transferred to your name and you can pick the keys up and move into your new home.
Applying for a home loan is the first step on the road to homeownership. Before you view a single home it’s important to get pre-approval, which is an indication from your lender that they’ll lend you a certain amount. This gives you a budget to work with when house hunting.
Before applying you should ensure that you have all the correct documentation and have considered what type of loan is best for you.
Once you’ve found a home and signed a sale of contract your lender will issue you formal home loan approval and you’re ready to settle and complete the purchase.
In the unlikely event that your home loan application is denied, don’t panic. Ask your lender why your application was unsuccessful, take some time to reorganise your finances and reapply when you’re in a better position.
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