Getting a home loan will be a necessary prelude to buying property for the vast majority of Australians. That being said, it can be an intimidating prospect for first-time buyers who might not know where to start, who to talk to or what to look for.
That’s why we’ve put together this guide to applying for a home loan, which unpacks and explains each stage of the home loan application process in all the detail you need to feel confident about your future home loan journey.
So, without further ado, let’s break it down step-by-step.
1. Meet with a mortgage broker or home loan specialist
If you’re a first home buyer, you’ll probably want to enlist the services of a mortgage broker, or enquire with your lender in-branch via one of their lending specialists.
Whichever option you take, you’ll want to use the opportunity to thoroughly talk through:
- Your current financial situation, including details of your income, expenditure, assets and debts (e.g. payslips, bank statements, any credit cards you currently have)
- Where you’re looking to buy
- The type of home you’re after (e.g. house, apartment or townhouse).
Based on the information you give them, they will then either provide you with a range of home loan options that align with your needs and wants, or recommend alternative plans of action that may better suit your goals.
If they do recommend other options outside of your stated parameters, it may be that your borrowing power is smaller than you thought or that you’re otherwise ineligible for the size or type of home loan you’re chasing. In this case, you could choose to settle for a smaller or different home loan, but you could also take it as an opportunity to take a step back and assess your financial situation; perhaps you might need to save up some more, ask for a pay rise or just tidy up your finances in general.
However, if your broker or mortgage specialist gives you the green light and shows you an option you like, it’s on to the next step for you!
2. Collating documentation for your home loan application
Once you’ve decided on the specific home loan product you’ll be applying for, it’s time to start pulling together the necessary information and supporting documents. These are crucial to your application, as they’ll give the lender a fairly comprehensive picture of your overall financial situation, including your income, regular expenditure and what you can afford in regular home loan repayments.
It’s important to note that if you’re working with a broker or home loan specialist, you’ll want to be as thorough as possible when collating the supporting documentation for your home loan application, so include any and all relevant information and provide as much relevant information as possible.
Otherwise, you risk your application being based on a false or incomplete understanding of your financial situation, which could have disastrous effects further down the track no matter whether you were approved or denied. Your broker or lending specialist will be able to advise you on what to include and the level of detail required by lenders when it comes to your home loan application.
3. Submitting your home loan application
Once you’ve put the finishing touches on your collection of supporting documents and information, it’s time to complete and submit your home loan application forms!
Your broker typically plays a large role at this stage, as they’ll be able to make sure you’ve fully and correctly filled out the application and attached all the appropriate supporting documentation.
Your broker will also usually submit the application on your behalf, and keep you posted on any subsequent correspondence from the lender.
4. Receiving conditional approval
If you’ve not yet settled on the property you want to buy, your likely next step will be receiving what’s called ‘conditional approval’ or ‘home loan pre-approval’ from the lender. A conditional approval signals that the lender has decided it might give you a home loan but requires further information before making a final decision. It’s not a final or formal approval, but rather an indication that you’re passed their preliminary credit checks and creditworthiness tests.
This usually means that the lender has assessed your financial situation against its lending criteria and the size of the home loan you’ve applied for – but until you nominate a specific property you want to buy, the lender won’t be able to make an informed final decision on whether to lend you money or not.
Conditional approval is still a handy thing to have though, as it means you can attend open houses with confidence, knowing you have finance pre-approved and in your back pocket.
5. Property identification and valuation
Once you find the right property for you, the lender will have a professional property valuer assess it to determine both its value and risk level. In order to accurately assess the property’s value, the valuer will look at things like:
- The number of bedrooms, bathrooms and car spots that the property possesses
- The size of the land the property is on (if the property is a house or townhouse)
- The quality of the property’s construction and fittings, along with any structural flaws or defects
- Access to public transport and amenities.
The property valuation process can take a few days, depending on valuer availability and when the seller makes the property accessible for valuing. If the lender likes what they see they’ll likely be in contact with your broker soon to offer unconditional approval.
6. Receiving unconditional approval
After the valuation of the property, if the lender is happy with the home in question and nothing about your financial situation has changed since you were offered conditional approval, they’ll likely offer you unconditional approval on your home loan.
This means that the lender has now given final approval for your home loan and made a formal commitment to lend you the money required to buy the property. Nothing’s legally binding yet, but you can consider your home loan application successful at this point, and the approval process just about over.
7. Reviewing the loan documents and letter of offer
After giving you unconditional approval, the lender will send you your loan contract, supporting loan documents and a formal letter of offer via your broker. You’ll generally want to look over and review these thoroughly to make sure everything’s in order and there aren’t any hidden nasties in the contract – you could also choose to have your solicitor do this for you.
8. Signing on the dotted line
Once your solicitor’s reviewed the paperwork and given you the thumbs up, it’s time to complete and sign it all in full. Your solicitor can help to guide you through this process, and your broker will submit the contract to the lender on your behalf.
9. Settlement day
At some point during the exchange of contracts and submission of your application documents, your lender, your conveyancer and the selling party will agree on a future settlement date. Final settlement is usually pencilled in 21 to 90 days after the contracts of sale are signed and exchanged; the time between the two stages is known as the settlement period.
On settlement day, the balance of your home loan will be paid to the seller and once all the contracts of sale and transfer of title documentation have been dealt with, you’ll be good to go as the new legal owner as the property!
You may also need to pay your stamp duty on settlement day, depending on where you live in Australia. Some states and territories require you to pay your stamp duty upfront at or before settlement, while some give you as long as three months past settlement date to pay your stamp duty. Check with your state or territory’s revenue office for more information on when your stamp duty will be payable.
If your lender requires you to pay lender’s mortgage insurance (LMI) as a term of your mortgage agreement, this will also typically be paid on settlement date unless you’ve chosen to capitalise it into your home loan.
Once the seller’s been paid, all the relevant documents have been signed and filed, and any other necessary payments have been made, congratulations! You’re now a fully-fledged property owner, and you can start preparing the move into your dream home.
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