Muscle tension, headaches, insomnia – these should not go hand-in-hand when purchasing your most valued asset, your home. Unfortunately, many home buyers sabotage their experience by not being “finance ready” and in some instances, take on undue risk.
Here is a guide for expediting your loan application and having peace of mind at an auction or the real estate agent’s negotiating table. The cliché of popping the bottle of champagne on your new terrace or carrying your partner through your new front door does not have to come at a cost!
It’s about making sure you provide your broker or bank with all of the required paperwork so that they can get a thorough understanding of your spending habits. Internet banking allows instant access to most of the information, so it shouldn’t take more than 30 minutes to create your package. You might even find out a few interesting things about how you’re funding your lifestyle in the process.
1. Who are you? Identification
Lenders will need to obtain 100 points of identification, so take a copy of your passport, driver’s license and medicare card and ensure all are still valid. Bring the originals to your appointment. If you are recently married and have your maiden name on some documents, include your marriage certificate. It is important any and all documentation and purchase contracts are signed with the same first, middle and last names that are listed on your identification.
2. Show me the money! Savings
Print out internet banking statements of your transaction and savings accounts for the last 3 months. Lenders will look for:
- Your salary credits
- Salary sacrifice credits
- Deductions of any loans, credit card repayments, leases etc.
- What your average monthly expenses are. Be realistic on what you spend on your lifestyle and note your living expenses accurately on your application. Most of us spend more than we think.
- Genuine savings – most first home buyers need to demonstrate their capacity to have saved a portion of their deposit on their home. Having an interest-bearing account where you regularly park away your savings indicates to the lender or mortgage insurance underwriter that you are a “low risk” applicant. Generally, 5% of the purchase price needs to be held in your combined savings and transaction accounts.
3. From Mumma with love – Family Gifts
If you are the lucky few that have family who can assist with a cash gift for your purchase, obtain a letter from the family member. The letter should be signed and dated with the amount gifted to be noted as “non-repayable”.
4. Are you currently renting? Good!
If you have been renting a home for 6-12 months via a real estate agent and not a private arrangement, you should obtain a copy of your rental ledger from your agent with the dates and amount of rent you have paid over your lease term. Lenders view rent payments made regularly and on time as a good indication of how your home loan repayments would be conducted.
5. Prove your income
For PAYG income earners:
- Most recent three payslips
- Your last two years of tax returns with the Notice of Assessment from the Australian Tax Office
- Evidence of any bonus income
- Employment contract (if required) noting minimum guaranteed working hours, probation period, reference to bonus or overtime
For Self-Employed income earners:
- Last two years of financial statements and tax returns for you and, if applicable, your company
- Most recent Business Activity Statements (BAS) since last financial year
- Business Account Statements for last three months
- ATO Portal (can be provided by your accountant) which needs to show that all tax obligations are up-to-date
6. Do you have an existing property?
- Last two rental statements from your agent
- If you intend to let the property after you purchase your next home, obtain a rental estimate letter from your local agent as the bank will rely on that for future income
7. Liabilities – to thine own self be true
Ensure you declare all liabilities on your application form. These will be evident on your credit profile and appear as debits on your accounts. Provide the following documents to support your application:
- Last six months of any home loan statements
- Last three months of any personal debts such as credit or store cards (whether you pay them off each month or not), personal loans, leases
- HELP debt confirmation (can be obtained via your myGov account or by contacting the Tax Office)
- Be realistic about any additional liabilities you may have such as child maintenance, private schooling or childcare and what your actual living expenses are. Check your last three months of total debits to your account to obtain an average of what you spend on your lifestyle.
A good balance sheet on your loan application is always favourable and may impact your credit risk score. Disclose the following on your application:
- Super balances
- Savings in bank accounts
- Home contents – do not underestimate the replacement value of your contents. It is generally in the tens of thousands
- Motor vehicles
- Any other assets of value
- It doesn’t hurt to include any income or life insurance policies as these will ensure your loans can be maintained or paid out in the event of an unforeseen circumstance such as injury or death
9. Taking the plunge – first home buyer
Inform your broker or lender if you qualify as a first home buyer as this may impact what home loan package you are entitled to, what anticipated stamp duty would be applicable on your purchase and whether you are entitled to a government grant.
10. You’re buying what?!
It’s important to advise your broker or lender what you are looking to purchase and in what location. When you have found a home you’re interested in, request a property report from your broker which will show you comparison and historical sales of that property and others like it.
Credit policy and how much you can borrow may differ depending on the following considerations (which is why we recommend a finance clause in any contract to allow the bank time to value your purchase):
- The state you intend to purchase in
- Land vs House vs Unit
- Existing or off the plan
- Internal living area (generally units need to be 40-50 sqm as minimum with most lenders)
- Address of your unit (some lenders will restrict how many units they will fund in a particular complex)
- Type of title – strata, stratum or company title
- Zoning – residential, rural or commercial
- Heritage listing, quality of build and any environmental issues such as bushfire risk, landslide etc.
11. Who’s got your back?
Have a conveyancer or solicitor ready to peruse any real estate contracts on your behalf and conduct due diligence prior to any offer becoming unconditional. Cheaper isn’t always better so seek a referral to reliable legal representation. Costs may vary by a few hundred dollars but this is usually the biggest purchase of your life so don’t skimp.
Notify your broker or lender of your solicitor or conveyancer contact details as they will liaise with each other throughout the application process.
Consider obtaining a “satisfactory” building and pest inspection report as a condition to your contract when purchasing a property. Termites, house movement, restumping costs, rising damp, drainage or plumbing issues, rewiring and insulation costs should not be a part of the welcome party to your new home.
And on a final note…
A good broker or lending manager takes the pressure off by guiding you through the loan application process and communicating with you on a regular basis so that it is not an overly daunting task. Commencing the pre-approval process early and maintaining frequent communication between all parties will ensure you sleep easy and reserve your energy for packing your boxes.
If you’d like to know more about the loan application process or to discuss your personal situation, click here to book an appointment with one of our lending specialists.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.