If you’re in the market for a new property, taking out a home loan (or mortgage) is an essential step. Whether you plan to make it your own primary residence or rent it out as an investment opportunity, this type of loan will provide the funds necessary to secure your purchase.
You generally need good credit to apply for a home loan in Australia. While there’s no universal minimum credit score required, having a good credit score significantly improves your chances of approval and access to better interest rates. But what about getting a home loan if you have bad credit?
Home loan application process
Regardless of the mortgage lender you select and your own individual circumstance, there is an expected sequence to the home loan application process. Here are its most likely steps:
Calculate your budget
Investing in property or selecting a home loan requires meticulous calculations. It’s important to evaluate your options before making any decisions.
To begin your financial planning journey, it is wise to evaluate your household’s income and outgoings. This should include any money generated by employment as well as other sources, plus costs related to personal loans, vehicle loans and credit cards.
Utilising a mortgage calculator, you can easily calculate an estimate based on the data provided.:
- Discover exactly how much you can borrow!
- Uncover the Total Cost of Your Repayments
- The chances of you becoming ensnared in a mortgage quandary.
It is essential to contemplate your home loan deposit, containing any grants or incentives such as the First Home Owner’s Grant (FHOG), and also your saved funds. The more substantial your deposit, the greater choice of loans may become accessible to you.
Additionally, you may also want to factor in additional expenses like stamp duty, conveyancing fees and other related costs when planning your home loan budget.
Compare prices before you commit to ensure that you’re paying the lowest possible rate.
The majority of homebuyers initiate their mortgage comparison hunt by searching for the loan deal with the most economical advertised interest rate, as a higher percentage will incur an increase in repayment costs.
Even though the home loans with the lowest interest rates may not always be best for you, or even cheapest when taking other fees and charges into account, a smart way to determine their overall cost is to look at its Comparison Rate. This figure combines all costs of interest, fees and charge in one percentage rate. So by considering this number you can get an accurate reading of what your loan will really cost.
Check the fees, features and other benefits and drawbacks
While comparison rates can give you an idea of a home loan’s total cost, they may not always be the most accurate representation.
Apart from standard and interest fees, there may be other expenses to add in your budget such as the yearly package fee for a consolidated home loan deal.
A home loan may also offer special features and benefits that could increase the offer’s value to certain borrowers, such as:
- Extra repayments
- Redraw facility
- Offset account
Some mortgage lenders also offer special deals to new customers, such as interest rate discounts or even cash back. Check the eligibility criteria and the terms and conditions for these deals to get a better idea of if they may suit your needs.
Keep in mind that some mortgage lenders may have other benefits and drawbacks to think about. For example, an online-only lender may offer a low interest rate and low fees, as well as convenient online access to your mortgage, but may not be able to package other financial products and services like some traditional lenders, or offer branch access for discussing your loan in person.
Collect financial documents
Securing a mortgage loan can be complicated, and lenders will need different documents to demonstrate that you are financially competent of taking on the responsibility. Your income and expenses should accurately reflect what is listed in your application so that it matches up with their requirements.
These may include:
- Payslips
- Bank statements
- Bills
- Proof of identity (e.g. driver’s license or passport)
- Employment contract
- Tax records
Fill out a lender’s home loan application form
When looking to apply for a home loan, you have the option of either completing an online application or filling out a paper form in-person at whatever lender you choose.
Regardless, you must include both physical and digital copies of your paperwork. To maintain a healthy credit score, ensure that you only submit one loan application at any given time – numerous applications result in multiple inquiries on your report. A good credit score is essential for a home loan application.
Good credit check and home loan valuation
To make sure you don’t owe more than what the property is worth, the lender will assess your credit score (based on how well you handle finances) and estimate the value of the asset.
If the appraisal is inadequate and your loan-to-value ratio (LVR) turns out to be too great for your pre-approved mortgage offer, you may have no choice but to pay for Lender’s Mortgage Insurance (LMI). An alternate option would be getting in touch with the lender about requesting a different home loan.
