
Applying for a home loan involves a series of important steps to ensure a smooth experience with lenders. Here’s a breakdown of key steps to help you prepare and improve your chances of approval:
1. Save for a Deposit
Set a target savings amount and timeline. Aim for at least a 20% deposit, as this will help you avoid Lender’s Mortgage Insurance (LMI), which can cost tens of thousands of dollars over the life of the loan. Review large expenses like rent or car payments and explore ways to reduce these. For example, moving in with family temporarily can help you save on rent.
2. Get Debts in Check
Reduce outstanding debts and manage your expenses wisely. Lenders will factor in your debts when assessing your application, so any owed amount can affect the loan size you’re eligible for. Cut back on retail spending, limit nights out, and consider a staycation instead of a holiday to help you save more.
3. Check Your Credit Record
Obtain your credit report from companies like Equifax or Experian. If your score is low, focus on improving it before applying for a loan. Clearing up any issues will make you more attractive to lenders. “Credit gold” status gives you a better chance of securing a competitive loan rate and quicker approval.
4. Define Your Target Location and Property Style
Location: Lenders monitor market trends by suburb and may limit loans in areas with high supply or projected price drops. Be clear about your target area to avoid any location-based loan limitations. Property Style: Different property types (apartments, townhouses, detached homes) carry different valuations based on demand and supply. For example, lenders may avoid funding for units in suburbs with a high number of new developments, as oversupply can lower market value. Size: Banks generally don’t lend for units under 50 square metres or land over 10 hectares in regional areas, so keep size in mind when property hunting.
5. Find the Right Lender
Your Bank: Starting with your current bank can be convenient since they’re familiar with your history. However, remember that they only offer their own products, which might not be the most competitive options available. Mortgage Brokers: Brokers arrange more than half of all loans in Australia. They can assess your financial situation, offer tailored advice, and compare products across multiple lenders. Brokers are paid commissions by banks and lenders for the loans they arrange. Consider a Loan Guarantee: Some banks allow parents to guarantee loans with cash or home equity, allowing for loans up to 105% of the property value. Seek financial advice to understand the risks and benefits.
Final Thoughts
Following these steps can improve your loan application outcome. This general advice is meant to provide direction; for specific guidance, always seek professional financial advice.