These days, it takes some serious work to enter Australia’s housing market and become a homeowner. If you’ve never taken out a home loan before, you might find the whole process a little intimidating. This step-by-step guide will help you through the home buying process and taking out a home loan, and hopefully make you feel more confident about doing it for the first time.
1. Compare your options
Before you can apply for a home loan, you’ve got to find one first – and the best way to find a home loan that works for you is comparing the options available to you.
Our home loan comparison tool can help you find out how a wide range of different home loan products stack up against each other based on things like interest rates, fees and features.
You’ll need to have at least a vague idea of what your borrowing power looks like to estimate your price range, the loan amount you’ll be applying for, and the potential size of your future mortgage repayments. This will help you to compare your options with all the knowledge you need on-hand.
2. Consider getting home loan pre-approval
You may not have found your dream home yet, but don’t let that stop you from applying upfront for home loan pre-approval. Home loan pre-approval can benefit you in multiple ways, including:
- Giving you a firmer idea of what your borrowing power will probably look like
- Allowing you to navigate the property market with confidence, knowing you’ve been pre-approved for a home loan
- Signalling to sellers that you’re not playing around; you mean business and you’ve got the pre-approval to prove it.
However, it’s important to keep in mind that pre-approval isn’t a guarantee that you’ll ultimately be approved for a home loan. When you formally apply for a home loan and provide the necessary supporting documents, your application will be subject to the same approval process and assessment regardless of whether you have a pre-approval or not.
3. Find your dream home
Ready to buy? Then it’s time to find your new home! You may find it easier to simply browse properties for sale online to develop a shortlist of potential candidates, or you may want to enlist the services of a buyer’s agent to do the searching for you. You may also want to think about what kind of home you’re hoping to buy. For example, do you want a townhouse or an apartment? You’ll have to consider and answer these sorts of questions before going house-hunting.
Once you’ve found one or several properties you’d like to buy, you can obtain detailed information on them via property reports. A property report provides valuable information, including:
- The basic details of the property such as the type of property it is, the number of rooms it has, its floor plan and area in square metres
- Its estimated value (as opposed to the listed sale price)
- A summary of the property’s sales history and sales activity
- Comparable sales in nearby areas (for the purposes of comparison).
A property report won’t tell you everything about a property, but it’s a valuable resource. Later in the process, you’ll still need to arrange your due diligence, such as property searches, building inspections and pest inspections once you decide on a property, as a property report doesn’t include this information.
Once you’ve found the right property, you’ll be just about ready to apply for a home loan, pending a few crucial steps.
4. Hire a conveyancer
A conveyancer is generally employed to help with property searches, title transfers and duty payments and helping you navigate anything that comes up throughout the purchase process. While you don’t strictly need a conveyancer (or a solicitor with the necessary conveyancing know-how) to take out a home loan, you may find their services useful when it comes to understanding and assessing the documentation and contracts that typically come with buying a home and to help you with the property searches you may wish to undertake as part of your due diligence. These property searches serve to explore local council rates, any easements or restrictions on the property, and potential notices regarding future plans for the area that concern the property – as such, they are a crucial component of any property-buyer’s due diligence.
To find a conveyancer, you may find it easiest to ask friends or family for recommendations based on their experience. They may be able to point you towards an experienced conveyancer they’ve worked with before, or let you know of someone else who could be better placed to suggest a conveyancer for you.
You may also want to consider looking into a mortgage broker, whose job is to help you find the right home loan and then get you the best deal possible.
5. Time to apply
If you’ve completed all the prior steps, you’re ready to formally apply for a home loan. The exact ins and outs of this step will vary depending on factors including the lender you’re applying with and whether you’re working with a mortgage broker. If you’re unclear, enquire with either one of your lender’s specialists or your mortgage broker (if you’re working with one).
Applying for a home loan generally involves:
- You collating and submitting the necessary documentation, including payslips, bank statements and details of any debts or assets you currently have to give the fullest possible picture of your financial situation.
- Your lender either verifying that they have all the information they need to process your application or requesting further supporting documents from you.
- If the initial assessment of your home loan application against the bank’s lending criteria is successful, you’ll typically receive what’s called ‘conditional approval’, which is more or less what it sounds like – formal approval that’s conditional on something (usually the results of a lender-conducted valuation of the property to determine the property’s value).
- If the lender is satisfied with the property valuation and there aren’t any lingering issues with your application, this is when you’ll receive what’s called ‘unconditional approval’ or final approval.
- Once finance is approved, you and the seller can complete the contract of sale. You or your conveyancer must provide a copy of the completed contract to your lender.
- Your lender will then prepare the loan documents required to finalise your mortgage agreement. You have to complete these documents in full and have them returned them to your lender.
- You’ve reached the settlement period! The lender’s home loan specialists will book in a settlement date and work with your conveyancer to arrange the final settlement day.
- On settlement day, your representatives will typically meet or liaise with the seller and lenders’ representatives to finalise the sale of the property, which will largely involve the exchange and reviewing of various cheques and documents. Once this is done, you’ll be a homeowner – congratulations!
Once that’s all done, your quest for home ownership is complete! You’ve successfully taken out a home loan and will soon be the proud owner of your new home. Congratulations!