Home loan application advice for first-time buyers

Home loans 101: what you’ll need to provide

“While there are a number of documents you’ll need as part of getting a loan, the good news is that technology (like ours) lets you upload and verify your documents online, quickly and securely, without even leaving your couch,” says David.

1. Identification - You’ll need to confirm your identity using your passport, birth certificate, or driver’s licence.
2. Assets - Lenders will ask you to declare any assets such as cars, property investment, share market investments or any other investments.
3. Liabilities - details of other existing loans such as a car loan, personal loan and credit cards. Some lenders will require evidence of good repayment history and will need to see the last three to six months of statements to show this.
4. Employment and income history - Payslips and your most recent group certificate.
5. Tax returns - If you’re self-employed, you’ll need both your individual tax return as well as a business tax return, along with your business’ balance sheet and income statement.
6. Record of expenses - You’ll need to declare, in detail, your expenses and provide bank statements from the last six months for lenders to cross-check. Lenders want to see that you’re able to make mortgage repayments should interest rates rise.

7 STEPS TO HOME LOAN SUCCESS

1. Start by shopping around and comparing

“Home loans are a bit like shoes, you need to find one that fits you perfectly,” says David. “There are thousands of home loans out there, so the easiest way of finding one that suits your individual needs and preferences is to make the most of online home loan platforms.”

2. Calculate your borrowing power

“Your borrowing power lets you know exactly how much you can borrow and spend on a property. Lenders calculate your borrowing power based on a number of factors.”

• Evidence of regular savings
• Size of deposit
• Employment history and steady income
• A good credit score
• Expenses and existing debts

3. The deposit

“Ideally, you want to save at least 20 percent of the property’s purchase price as the deposit. Why 20 percent? Well, a deposit of less than a 20 percent will generally incur an extra charge called mortgage insurance (LMI). This insurance only protects the lender in case you default on your loan.”

“If, like many young Australians, a 20 percent deposit is out of reach, it is possible to get a loan with as little as a five percent deposit. Keep in mind, the lower your deposit the more LMI you’ll be charged.”

“One of the ways to reduce the amount of deposit you need to pay without having to pay LMI is to use equity from a parent or family members property as part of a ‘family pledge’. This means you are still liable for the full loan, but the lender knows there is security for a certain portion elsewhere. Your home loan specialist can discuss this option in more detail with you.”

4. Don’t forget about the upfront costs

“While the deposit is the biggest chunk of money you’ll need to cough up, there are a number of other costs you’ll need to consider before buying,” says David. “As a rule of thumb, these usually equate to between three and five per cent of the property purchase price.”

• Stamp duty (sometimes called transfer duty)
• Legal and conveyancing fees
• Pest and building inspections
• Valuation fees
• LMI - an additional fee for borrowers with low deposits (less than 20 percent)
• Lender legal fees - although this is sometimes integrated into the loan application or establishment fee
• Loan application or establishment fee - some lenders waive this fee, however, our home loan specialists can help negotiate this discount
• Home and contents insurance - some lenders request this.

5. Get pre-approval

“If you’re attending inspections looking for your dream home, consider getting pre-approved before making an offer. Pre-approval is an indication that a lender is likely to approve you for a home loan and means that you have been pre-approved from a lender to borrow a fixed amount.”

“Pre-approval lets you know how much you can borrow and spend. Another bonus is that pre-approval can be viewed favourably by sellers, as it can mean a faster settlement,” says David.

“It’s free to get pre-approved and valid for up to three to six months, with the option to extend at the end of the term if you haven’t found the right property yet.”

6. Making an offer

“Once you’ve been pre-approved you’re free to make an offer or bid at auctions knowing what you can and can’t afford.”

1. Before making an offer request a contract of sale from the real estate agent for your solicitor or conveyancer to review. If all looks good, go ahead and make an offer.
2. Once the seller has accepted the offer, you’ll  exchange contracts and pay the holding deposit. This is typically around 0.25 percent of the purchase price. At this point, the property can’t be sold to another buyer.
3. Send your home loan specialist the contract of sale and deposit receipt so they can get your loan formally approved.
4. If you’re offer is accepted there’s typically a five day cooling off period. (there’s none if you purchase at auction).
5. During this period, a valuation and building inspection will take place.

7. Settlement

“Now’s the most exciting part. Once you’re formally approved, simply sign the home loan documents. The property is registered in your name and the keys are handed over to you, the new owner.”

All the advice in this story is general in nature and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.

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