Applying for a Home Loan – It pays to plan ahead!

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

When applying for a home loan in today’s market, Lenders will seek a lot more information and evidence, to confirm you can in fact afford the loan you are seeking.

The requirements are largely the same for first home buyers, those looking to upgrade or undertaken renovations.

Whilst the level of information required may seem onerous, it is designed to ensure your dream home doesn’t turn into a nightmare!

Your Equity – How much can you contribute?

Most Lenders in today’s market, will be looking for a deposit of between 10% and 20% of the purchase price.

You will need to provide Lenders evidence that you have accumulated the deposit in the form of savings through provision of Bank Statements.

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

If you are borrowing against equity in an existing property a Sworn Valuation may be required.

Mortgage Insurance

If you are applying for a home loan and your equity or deposit is below 20%, Mortgage Insurance will almost certainly be required – which will add to debt servicing cost!

Mortgage Insurance premium range from 1% and 4 % of the loan amount.

It is important to understand Mortgage Insurance protects the Lender in the event of default. You still remain responsible for the debt.

Funds to cover Stamp Duty and Fees

When you apply for a Home Loan you will also need to provide evidence (Bank Statements etc.) that you have sufficient funds in addition to your deposit to cover such things as:

• Stamp Duty on both the Land Transfer and Mortgage
• Establishment and Settlement Fees
• Documentation Fees

Income Verification – PAYG

PAYG applicants applying for a home loan will need to provide confirmation around their employment including, whether fulltime, part-time or casual.

Documentation required includes:

• 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 which confirm crediting of your salary

Income Verification – Self Employed

If you are self-employed you will to provide:

• Business, Trust, & Personal Tax Returns for the last two years
• Tax Office Notice of Assessment for the past two years
• For Trusts, a copy of the Trust Deed to confirm distributions

Significant variances of income in the past, or future years, will also need to be explained.

Expense Verification

As part of the loan application process, Lenders will ask you to complete a detailed Monthly Budget to demonstrate you can service the loan you are seeking.

To support the Monthly Budget, you will also be asked to provide copies of your:

• Last 3 months Bank & Credit Card Statements

so that your spending patterns can be confirmed.

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

If you will need to change your spending patterns to service the loan, then it would be wise to plan ahead to demonstrate that you can afford the repayments in advance.

List of Assets and Liabilities

As part of the application process you will also be asked to provide a detailed Statement of Assets (What you own) and Liabilities (What you owe).

For the Liabilities it is important to include all Credit Card liabilities (Limit and outstanding balance, Loans (provide details, monthly payments) and Hire Purchase etc.

Clean Credit History

As part of the loan application process Lenders will also perform a credit check to confirm you have an acceptable credit history.

You can find out more about credit ratings and obtain a Credit Report by contacting one of the three approved Credit Reporting Bodies:

• Dunn and Bradstreet
• Equifax
• Experian

The link below provides more information about accessing your Credit Report:

• https://www.oaic.gov.au/individuals/faqs-for-individuals/credit-reporting/accessing-your-credit-report

Applying for a Home Loan Summary

Whilst applying for a Home Loan requires provision of a lot of information, if you plan ahead and progressively gather all that will be required, it can save a lot of time and frustration.

An experienced Mortgage Broker can:

• Work with you to understand your requirements and objectives with the aim to achieve a favourable outcome
• Help you navigate the Home Loan process
• Save you time and hassle by doing all the research and negotiation with Lenders
• Find a highly competitive loan structure from our panel of over 30 Lenders which includes all the major Banks

If you would like to learn more about how I can assist when applying for a home loan, give me a call on 0433 210 353