What you need for a successful home loan application

It’s one thing to apply for a home loan, but getting your application successfully approved is another. Every mortgage lender has different eligibility criteria, but there are steps you can take to help improve the likelihood of your application receiving preapproval and final approval from your lender.

What documents are required for a home loan application? 

Some of the most commonly-required documents to apply for a home loan include:

• Proof of identify (e.g. driver’s license, passport, birth certificate, citizenship certificate etc.)
• Proof of income (e.g. payslips, bank account statements, employment contract, tax return etc.)
• Details of assets (e.g. superannuation, shares, vehicles etc.)
• Details of liabilities (e.g. personal loans/car loans, credit cards etc.)
• Details of household expenses (e.g. groceries, transport, utility and telco bills, childcare, insurance, entertainment etc.)

You may need to provide different documents depending on how you earn your income, such as if you’re a self-employed freelancer or contractor. Additionally, you may require additional documents if you’re applying for a different type of home loan – for example, if a family member is agreeing to guarantee your mortgage, they may also need to provide their personal and financial information.

Your lender will likely conduct a credit check when you apply for a home loan. While your credit score may not play as large a role when buying a house as it does when applying for a personal loan or a credit card, bad-credit borrowers may struggle to successfully apply for home loans. You can apply for a free credit check to get an idea of how a lender may see you before filling out an application form.

What fees and charges will you have to pay as part of a home loan application?

Most banks and other mortgage lenders charge fees when you apply for a mortgage. Additionally, there will likely be other upfront expenses to account for when buying a property, to be paid to other third parties.

Some of these costs may include:

• Upfront fees: Sometimes called establishment fees, these cover the admin costs of processing your application and setting up your home loan
• Valuation fee: Covers the cost of a valuer checking how much the property being purchased is worth, which may be required to receive full approval
• Stamp duty: Sometimes called transfer duty, this state/territory government tax must be paid when a property’s title changes hands, though there may be discounts and/or exemptions for some borrowers, such as first home buyers.
• Mortgage registration fee: Paid to the land titles office when your mortgage is registered with them
• Conveyancing/legal fees: It’s not essential to have a conveyancer, solicitor or similar legal professional check the sale contract and facilitate the legal transfer of a property’s ownership, though it’s often recommended.
• Lender’s Mortgage Insurance (LMI): If you’re buying a property with a deposit of less than 20 per cent, you may need to pay for an LMI policy, which covers the lender (not you) if you default on your mortgage repayments.
• Pest and building inspections: Checking a property for any hidden risks before making a purchase.

Remember that if your home loan application is approved, you’ll not only have to budget for the cost of mortgage repayments, but any ongoing fees or charges. If you later refinance or otherwise exit the loan, you may need to pay discharge and/or break fees.

What’s the difference between pre-approval and full approval?

Also known as conditional approval, pre-approval is where a lender agrees in principle to lend you money to buy a property, up to a maximum loan amount. Your maximum mortgage size will be based on your income, expenses, and the repayments your lender calculates you can comfortably afford.

However, it’s not guaranteed that this pre-approval will eventually proceed to full approval, also known as final approval or unconditional approval. Also, you may not receive final approval to borrow the full pre-approved amount, depending on your financial situation and the property your choose to buy.

Pre-approval can give you a budget to work with when shopping around for a property. But if you already know what you’re buying, you may be able to skip this step and aim straight for final approval.

To receive unconditional approval, your income and expenses will need to fulfil the lender’s eligibility requirements. If your financial situation has changed since you first applied for pre-approval, there’s a risk you may not be offered final approval.

Before a lender will approve your home loan application, they will also need to conduct a valuation of the property you’re buying and compare its value to how much you’re borrowing. Most lenders will want to see a Loan to Value Ratio (LVR) of 80 per cent or less – if your LVR is higher, you’ll likely have to pay for LMI, or get help from a guarantor. Though if your LVR is lower, you may be eligible for a home loan with a lower interest rate or additional features and benefits.

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