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Home Loan Process
How to blitz the “scary” mortgage process
Admit it: you’re confused about the whole mortgage process.
Many first home buyers and even seasoned borrowers feel intimidated because of the many steps involved.
Many borrowers also fail to realise that the home loan process starts well before you apply for a loan and extends well after it settles.
Prepare and conquer your home loan fears
Before you apply for a home loan, you need to be financially prepared. This starts with you saving a deposit.
A 5% deposit is a great target since it meets most lenders’ requirements for genuine savings, typically savings or term deposits you’ve held for 3 months.
The more you save, the better. That’s because a bigger deposit can help you get a better home loan deal.
If you can save 20% deposit, you’ll save yourself a pretty penny. That’s because you won’t need to pay Lenders Mortgage Insurance (LMI), a one off fee charged generally when borrowing than 80% of the property value.
Please note that there are also no deposit home loan solutions available.
When you’re ready, you can move on to apply for home loan pre-approval.
Why do I need pre-approval?
Having a home loan pre-approval means that your mortgage has been pre-assessed by a bank. This ‘conditional’ approval is free and is valid for 3-6 months depending on the lender.
By getting a pre-approval, you know whether or not your personal situation meets the bank’s lending criteria.
This also gives you an indication of how much you can afford to buy so you don’t waste time chasing properties that you can’t afford.
However, please note that not all pre-approvals are reliable. With a reliable pre-approval, you won’t need to wait for the bank to go through the entire loan application process. This results in a shorter closing period on your home loan.
If you’ve been pre-approved but don’t know what to do next, you can check out on what to do next after securing a mortgage pre-approval.
Choosing a property
Whether you’re buying the property to live in or as an investment property, it’s important to do a thorough research. The main listing websites are Realestate.com.au and Domain.com.au. These sites offer comprehensive listings and some market insights too.
Even if you’re buying the property as your home, it’s still important to consider its sellability. Ask yourself who would buy this property if you have to sell in a hurry. This not only help reduce your risks, but it also help you gain approval from the banks. Generally, banks are more conservative when it comes to lending for unusual property types, so try to stick with the “bread and butter” type properties.
The process of selecting a property involves a number of steps. You may want to check out the home buying process page.
Once you’ve chosen your property, you can move on to the next stage in the home loan process where you actually apply for a home loan.
What really transpires during the home loan application process?
After you’re pre-approved and have selected a property, the lenders will assess it to check its value. If you have a very low risk application, you may not even need a valuation at all.
Your mortgage broker can also get you an upfront property valuation report before you apply for a home loan.
Once the lender has everything they need and can confirm their willingness to lend, you’re formally approved. This is also known as unconditional approval.
When borrowing more than 80% Loan to Value Ratio (LVR), you may also need LMI approval.
Next, the lender will give you a loan contract to sign. After you’ve signed and returned it, you’ve reached the final stage in the home loan process:settlement.
How do banks check my borrowing power?
Different banks use different combinations and calculations to check an applicant’s borrowing power. Generally, they take into account the income, expenses and personal situation of the applicant using one or more of the following calculations:
- Net Surplus Ratio (NSR),
- Debt Servicing Ratio (DSR), and
- Surplus / Uncommitted Monthly Income (UMI).
Calculate your borrowing power!
To get an accurate indication of how much you can afford to borrow, you can use the borrowing power calculator. It combines the exact method that three of our banks use to check whether or not you qualify.
However, the calculator should be used as a guide only. That’s simply because some items such as tax and medicare rates, living expenses and debt repayments differ from lender to lender, and therefore, can change the results.
What documents do I need?
The home loan process can go more smoothly if you prepare the following documents in advance:
- Payslips: They are the easiest way to prove your income. You need at least two consecutive payslips not older than four weeks from the date of application.
- Account statements: Your statements and transaction histories must contain account numbers, balance, limit and transactions for the specified period.
- Liabilities and expenses documentation: This includes statements for car loans, other mortgages or credit cards.
- Asset documents: Generally, lenders check your savings record through bank statements or rate notices.
- Certified identity documents: These documents must contain the certifier’s details, document number and date of issue.
- Statutory declaration: You must prove a marriage certificate or a statutory declaration if your name has changed due to marriage or divorce.
For more information on the documents you may need and what to do if you don’t have them, check out the home loan documents page.
What comes after settlement?
Settlement is when you officially become the owner of the property.
Your conveyancer can help you with everything you need to know about it but what about your home loan?
We can help you through to settlement and well beyond it.
After settlement, we’ll call you a number of times to make sure you understand your home loan.
You’ll get ongoing help where we will review your interest rate and help you switch loan products if needed. We’ll also perform an annual review on your home loan to check if you’ve had any problems.
You can check out the loan application process page to find out what to expect when applying for a home loan and how we can help.
Refinancing a home loan
Most people refinance a home loan to get a better interest rate. However, you can also refinance to access equity, renovate your property, switch mortgage packages and to get access to extra features or add-ons.
Even if you’re on a variable rate, you can consider refinancing once you hit the 3 or 4 year mark. By shopping around, you can find a better interest rate or a more flexible product.
Since refinancing is basically applying for a new mortgage, you’ll need to provide standard home loan documents such as payslips, bank statements and identification.
Your property will be revalued and your new mortgage will be used to pay off the old mortgage.
However, you’ll need to consider the upfront and ongoing costs of your existing mortgage before switching. For example, if you’re on a fixed rate, you’ll have to pay break fees to switch.
Call us on 1300 889 743 or complete our free online application form to find out the current offers and whether or not you should refinance.
Home loan process FAQs
How long does it take to apply for a home loan?
The time it takes to apply for a home loan depends on the nature of the loan application. Complex applications take longer than simple ones.
For a relatively faster home loan process, you can start by spending an hour with a mortgage broker discussing your situation and loan needs.
Most of our clients take up to 48 hours preparing their documents. After receiving these, we assess them and provide our recommendations in 24 hours.
The lender can then take from four hours up to two weeks for conditional approval, with valuation taking anywhere from two days to a week.
Formal approval will take anywhere from one day to one week.
Settlement is typically six weeks after you’ve paid your deposit. However, you can negotiate a more suitable date with the vendor. A settlement period of less than four weeks is not recommended since some banks may not be able to meet the deadline.
You can go through the entire home loan process up to settlement in 6 to 8 weeks.
Who should own the property?
If you’re applying for a home loan as a couple, you’d need to decide how the ownership will be structured or split.
The types of ownership are:
- Sole owner: This means that you’re the only owner of the property.
- Joint tenants: Joint tenants each own equal shares of the property. This is mostly chosen by married couples and if one passes away, the other automatically owns their share.
- Tenants in common: Tenants in common don’t need to own the property in equal shares. Friends or business partners tend to choose this option. Since there is no right of survivorship in this case, if an owner passes away, their share is transferred as per their will.