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Applying for a Home Loan – Planning Pays Off!

Applying For A Home Loan - What You Need To Know

It pays to plan ahead to avoid disappointment, delays, and a lot of frustration when applying for a home loan!

This is even more so in a housing market where supply is constrained, and prices are accelerating.

Even borrowers with an established track record, are often surprised about the amount of information and evidence they need to provide when seeking home finance in today’s market.

If you are not well organised and don’t have all the necessary information available, it will invariably lead to delays and could see opportunities foregone!

I have outlined some tips below that may help make the process easier.

Applying for a Home Loan – How much Equity?

A common question I am often asked by those applying for a home loan is much equity is needed?

Most lenders will require equity of between 10% and 20% of the purchase price.

First home buyers will need to provide Lenders evidence that they have accumulated the deposit in the form of savings through provision of Bank Statements.

If funds are contributed by third parties (e.g., family), a Statutory Declaration stating that the amount is non-repayable will also be required.

If you are borrowing against equity in an existing property, in some circumstances, a sworn valuation may be required to confirm you have sufficient equity.

The Home Finance Handbook Updated - Mortgage Finance

Applying For a Home Loan – Self Employed

PAYG applicants applying for a home loan must provide proof of employment, including whether they are full-time, part-time, or casual.

The following supporting documentation is also required:

  • Group Certificates for the last two years
  • Two recent payslips
  • A breakdown of income, salary, overtime, commissions, allowances, bonuses etc.
  • A copy of Bank Statements confirming the crediting of your salary

Pay As You Go (PAYG) Income Verification

If you work for yourself and are applying for a home loan you will be asked to provide:

  • Business, Trust, & Personal Tax Returns for the last two years
  • Notices of Assessment from the Tax Office for the previous two years
  • If you use a Family Trust, a copy of the Trust Deed

Significant fluctuations in income for the previous, or future years, will also need to be explained.

Applying for a Home Loan - It Gets Granular!

When applying for a home loan, Lenders will ask you to complete a detailed Monthly Budget as part of the loan application process to demonstrate your ability to service the loan you are seeking.

You will also be asked to provide copies of your last three months’ Bank and Credit Card Statements so that your spending patterns can be confirmed.

It is critical to refer to these Statements when preparing your Monthly Budget, as it is easy to overlook, or under-estimate expenses.

(If you need to change your spending patterns to service the loan, it would be wise to do this in the months before submitting your application, so you can demonstrate that you can afford the repayments).

List of Assets and Liabilities

In addition to the monthly budget, you will also be asked to provide a detailed Statement of Assets (what you own) and Liabilities (What you owe), as part of the application process.

Ensure you include all:

  • Credit Cards (limit and outstanding balance)
  • Loans (Details, monthly payments),
  • Hire Purchase or Chattel Mortgages
  • Store or Payday Schemes

Unused Credit Cards

The way many Lenders assess credit cards can have a significant impact on what you can potentially borrow.

Even, if you don’t use the card, many Lenders will assume it is fully drawn for servicing purposes. This can significantly impact the amount you will be able to borrow!

If your debt servicing is tight and you don’t need the card, to avoid this becoming an issue, it may be worth cancelling the card in the months before seeking the finance.

Lenders Mortgage Insurance

If you apply for a home loan and your equity or deposit is less than 20%, Lenders Mortgage Insurance will almost certainly be required – adding to your debt servicing costs!

Mortgage insurance premiums range between 1% and 4% of the loan amount.

It is critical to understand that Mortgage Insurance protects the Lender in the event of a default, not you the borrower! You will still be liable for the debt.

Stamp Duty and Fees

When you apply for a home loan, you will also need to provide evidence (Bank Statements, for example) that you have sufficient funds in addition to your deposit to cover expenses such as:

  • Stamp Duty on both the Land Transfer and Mortgage
  • Documentation Fees
  • Legal & conveyancing costs

Clean Credit History

Lenders will conduct a credit check as part of the loan application process to ensure you have a good credit history.

It is worth contacting one of the three approved Credit Reporting bodies to obtain a Credit Report.

  • illion
  • Equifax
  • Experian

If anything, adverse exists which is incorrect you can seek to have it reviewed/rectified before you submit your application

Summary

As stated earlier many clients are often surprised by the amount of information that is needed to support their application for finance.

That said, understanding the process and with a bit of planning, a lot of delays and frustration can be avoided

As an experienced Mortgage Broker, I can:

  • Save you time and effort by doing all of the research and negotiating with lenders
  • Find a loan structure that is highly competitive from our panel of over 30 lenders, which includes all the major banks
  • Assist you to successfully navigate the Home Loan process

If you’d like to learn more about how I can help you apply for a home loan, don’t hesitate to get in touch.

Carlo Colangelo - The 500 Group - Mortgage Finance

Carlo Colangelo

Carlo Colangelo - The 500 Group - Mortgage Finance

Carlo Colangelo

Carlo has a background in Senior Relationship Management, Private Banking and Mortgage Broking finance of over 30 years.

He enjoys helping clients successfully navigate the world of home and property investment finance to access the finance they need.

Carlo Colangelo is a credit representative (530636) of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237)

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