How to apply for a home loan We’ve made an assumption that anyone reading this is more than likely a first home buyer however if this is not your first time you should still find some useful information.
The obvious first step is to find out how much you can afford in monthly repayments and that’s interesting in itself. You might have a figure in mind but the lender might have a different and lower figure once they have done their calculations.
We’ve made an assumption that anyone reading this is more than likely a first home buyer however if this is not your first time you should still find some useful information.
The obvious first step is to find out how much you can afford in monthly repayments and that’s interesting in itself. You might have a figure in mind but the lender might have a different and lower figure once they have done their calculations.
This is critical because we wouldn’t want you to commit to a purchase only to discover the lender won’t approve the amount you need.
So step one is to give one of our Finance Managers a call and you’ll get an accurate picture of how much you can afford each month and therefore how much you can borrow.
Let’s assume we told you your borrowing capacity is $500,000. It could be you alone or you and a partner.
Step two is now calculating how much you can contribute towards the purchase most usually by your accumulated savings. ( refer to our story on Parental Guarantees if you have only limited savings)
You tell us you have $50,000 available as a deposit which technically means you could afford to buy a property to the value of $550,000.
Looking at those sums from a lenders perspective the loan amount would be $500,000 against a property valued at $550,000 which means your Loan to Valuation Ratio would exceed 80%. Any loan above 80% requires Lenders Mortgage Insurance which is explained in another of our articles on this website.
With Lenders Mortgage Insurance explained to you by our Finance Manager you are still keen to proceed and we would now mover to step three.
This is the point where we have a face to face interview and it goes something like this.
We first ask you a series of questions called a Fact Find and it essentially gathering facts about what you are trying to achieve (buy a home); details of your income (payslips etc); your employment history (looking for some stability); any other borrowings (credit cards etc). There is a bit more to it but when we have all the information we will have a good idea as to your chances of a loan approval and perhaps which lenders are most likely to meet your needs.
Assuming you decide to proceed we move to the next step where we give you a Credit Guide explaining who we are and what we do and your rights as they are governed by ASIC.
If you are still happy to proceed we will than discuss a pre-approval. What this means is we will complete a full application to one of the lenders of your choice but we will not include a specific property. In other words we are asking the lender to approve a specified amount ($500,000) against a property valued at $550,000 or less. We will also complete a Credit Proposal for you which essentially details a summary of the loan applied for and other related information.
The lender will do their due diligence which will include a credit check and most probably confirming your employment and in due course they will advise us your loan is approved “subject to valuation”.
Now you can go to the market with a higher degree of confidence knowing you have been conditionally approved but a few words of warning:
• Just because you have been conditionally approved don’t let anyone talk you in to making a cash offer
• Don’t offer above $550,000 without talking to our Finance Manager first
• On the offer document there is a box asking you to nominate a lender. Be specific and nominate the lender we have used and do not be swayed to put “any lender”.
Look forward to haring from you.
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