Preparing to apply

Are you ready for a home loan?

Mortgage checklistNot everyone we speak to is ready or able to buy a property right away. We’ve created this page as a guide for people who would like to increase their chances of approval or to be eligible for a better discount when the time is right.

Whilst the Australian media has many articles on home loans and borrowing money, very few of them are written by industry experts and as a result the advice & tips are not very helpful.

Step 1: Basic lending rules

Your first goal is to make sure that when you apply for a loan that you meet the criteria of as many lenders as possible. This enables you to apply for the cheapest home loan on the market.

  • Employment: Ideally all applicants should be in their current job for a minimum of 6 months. For casual and contract employees many lenders require 12 months and for self employed 2 years. There are some exceptions to these rules for strong applicants.
  • Credit history: Lenders look very closely at your credit file and only rarely approve loans for over 80% of the property value for people who have had problems with their credit file. Get a free copy of your credit file, pay off any debts you have outstanding and avoid applying for too many personal loans and credit cards in the 12 months before applying for your home loan.
  • Deposit size: The larger your deposit, the lower the risk to the lender. Lenders consider a loan to be “safe” if it is for 80% of the value of the property. For this reason they are far more likely to make an exception to their normal lending policy if you have a large deposit and only need to borrow 80%. If you borrow over 80% then the lender will charge you a once off fee known as Lenders Mortgage Insurance and will be very strict when assessing your loan.
  • Genuine savings: This is the most important aspect when applying for a loan! Lenders know that people who have saved more than 5% of the purchase price in a savings account, shares or term deposit are far more likely to pay back a home loan than people who have no savings. Put all of your spare funds into a separate savings account and keep making regular contributions. There are some exceptions to this policy for strong applicants.
  • Property type:Did you know that lenders prefer you to buy as “normal” a property as possible? Typically they prefer large towns or capital cities and only houses or units over 50m2 internal area excluding balconies and car spaces. If you are looking at buying another type of property then please refer to our property types page on our website to find out how much you can borrow.
  • Asset position: Lenders look to see if your asset position matches your age and income. For example a 50 year old first home buyer earning $100,000 p.a. with no assets would likely be declined for a loan. Work on paying off your unsecured debts such as credit cards, personal loans and try to save as much as you can.
  • Payment history: If you are not paying your credit card, personal loan and rent on time then what is the likelihood that you will pay your home loan? Lenders particularly dislike people missing repayments, even if they are just a couple of days late. Try to manage your money well and avoid being late with your loan repayments. Lenders may ask for a letter from your managing agent confirming you have paid your rent on time or for statements from your previous loans.
  • Guarantors: If you have a guarantor then you may be eligible for a loan now! Around 60% of first home buyers get either a gift or a guarantee from their parents to help them buy a home. We strongly recommend that you discuss this with your family as this is one of the easiest for young people to enter the property market.

What if you don’t meet the above criteria? Then please explain your situation on our home loan forum and we’ll be happy to help answer your questions and let you know if there is a lender that can help.

Step 2: Keep your documents

Typically lenders will ask for a lot of information when you apply for a loan. Again the more information you can provide the better your chances of getting an approval. We recommend that you keep your statements for all of your loans and credit cards as well as payslips, tax returns and anything else we have listed below.

This is a typical checklist of documents required for a home loan.

  • 100 points ID: Drivers license, Medicare & ATM Card.
  • One recent statement for all of your debts (credit cards, personal loans, etc).
    • We need one statement received in the mail (all pages).
    • Transaction histories printed from the internet are only acceptable if accompanied by an old statement received in the mail.
  • One recent rental statement for any investment properties you own.

Purchases

  • Evidence of your deposit such as a bank statement
  • If you have saved your deposit then please provide 3 months bank statements OR an internet transaction history for 3 months as well as one statement you received in the mail.
  • Copy of the contract of sale (not required for pre-approval):

    •             

    • NSW – Front page
    • QLD – First two pages
    • VIC – Particulars page
    • SA – First two pages
    • WA – Offer & acceptance (both pages)
    • ACT – Front page
    • NT – All pages
    • TAS – Front page

Construction

  • Either a building contract OR a formal written quote OR tender.
  • Plans (council approved OR draft)
  • Specifications (often included in the quote or building contract)

Refinances

  • Council rates notice for the property or properties that you are using as security.
  • 6 months statements for your current home loan.
    • We need 6 months statements received in the mail (all pages).
    • OR Transaction histories printed from the internet are only acceptable if accompanied by one old statement received in the mail.

PAYG Applicants

  • Your two most recent payslips.
  • (Optional) Your last year’s group certificate.

Self Employed Applicants

  • 2 years personal tax returns.
  • 2 years personal tax assessment notices.
  • 2 years company / partnership / trust tax returns.
  • 2 years financial statements (if available).

OR

  • Your ABN for Low Doc / No Doc loans.

Guarantors

  • 100 points ID: Drivers license, Medicare & ATM card.
  • Council rates notice for the property being used as security for the guarantee.
  • One recent statement for any loan on that property.

Step 3: Increase the size of your deposit

The larger your deposit the cheaper your loan will be. You should aim to save a minimum of 5% of the purchase price before buying a property, and in most cases there is no need to save any more than 20% of the purchase price. The larger your deposit the less you will be charged in Lenders Mortgage Insurance (LMI). If you borrow 80% of less then you will not pay any LMI at all and lenders will be far more likely to accept your loan if you are outside of their normal guidelines.

Step 4: Ask us for advice

Our home loan forum has bee set up specifically to help people who need advice about their situation but are not yet ready to apply for a loan. So feel free to join up and ask us any questions you have about home loans.