How to apply for a home loan
Applying for a home loan involves asking a lender for funds to help you to buy a property. But how do you actually do that?
There are a number of ways as a hopeful home buyer you can approach this financial transaction. First up, we’ll discuss how it might be handy to think about when you plan to apply for the home loan, as that can determine how you go about applying for one.
Then, we’ll step through the process of researching your options, approaching a lender with a loan enquiry and then actually making an application for a mortgage.
When do I apply for a home loan?
There are two main points during the process of buying a home where you typically apply for a home loan – either before you start to look for properties to buy, or when you’ve found one and want to put your offer on a contract.
Applying for a mortgage before finding a home:
You may choose to apply for a home loan before you’ve found a property to buy. This is called ‘conditional approval’ or ‘pre-approval’, and can help you as a potential buyer to understand how much money you may be able to borrow from a particular lender.
While pre-approval is not the same thing as formal approval, it can still be a useful first step as it can help you work out the price range of properties you could look at. This could, in turn, determine the type of house or apartment you choose to consider, as well as the location.
It’s also something that people often do if they’re considering buying a home at an auction, where it can be crucial to have finance sorted before bidding. Bids at auction are usually ‘unconditional’ and legally binding.
Typically, as a pre-approved applicant, a bank will issue you with an official letter or statement. This sets out how much you can borrow, and the conditions of the pre-approval, such as how long you have to buy a property before the pre-approval expires.
When a contract of sale is signed subject to finance, ‘formal’ home loan approval is required, and the lender will typically step you through a more detailed approval process. It’s for this reason that pre-approval comes with the warning that the loan is not fully approved – the lender could change their mortgage offer.
→ Compare: Home loans with pre-approval
Applying for a home loan after finding a property to buy:
You may choose to wait until you’ve found a property to buy before approaching a bank to ask for a loan, or you may have found your dream home first by happenstance. If that’s the case, then it’s possible to apply for a home loan after finding a property to purchase.
→ Explore: How to make an offer on a home
A real estate contract will typically include a ‘finance clause’ (except for most properties bought via auctions). This clause allows you and the seller to negotiate an agreement about how long you have to obtain a home loan, and for that home loan to be approved, giving the seller notice that there are funds available to settle the contract.
If you’re unable to find a bank that’s willing to finance the purchase, the contract conditions would typically not be satisfied and so the contract would be cancelled. The risks involved in doing so include that you could typically lose any deposit you’d paid to the seller upon entering into the contract.
When considering buying a property, it could be a good idea to obtain the advice from a suitably qualified professional, such as a trusted solicitor, before signing any contract.
→ Learn more: Mortgage deals & sign-up incentives for first home buyers
How do I apply for a home loan?
Step 1: Research the market
Before you dive into applications for home loans, it’s a wise idea to thoroughly research the mortgage market first, and learn about how it works and what represents good value for your needs.
→ Canstar Checklist: What to look for in a home loan
One way to investigate the home loan market is to use a comparison site, such as Canstar. Our home loan selector allows you to enter in some basic information about the type of loan you think you’d like, and then compare rates and other product information. You can filter these results to include or exclude certain features. This could help you to narrow down your options and make a short list of lenders you’d like to approach about a loan.
There are many factors to consider when selecting the right home loan to apply for, including:
Interest rates
- How much interest is charged on a loan can make a big difference to the price of repayments, and how much the loan will cost you in the long run. Questions to consider could include:
- How much interest will the bank charge?
- Is it a variable rate loan, which changes according to the market conditions, or a fixed rate loan, which means the interest rate is locked in for a period of time?
- Is this interest rate an introductory rate or deal that may expire at some point?
- Is the rate competitive with other rates on the market?
Fees and ongoing charges
- There are usually some extra expenses involved when setting up a mortgage. Some are fees charged by the government, such as stamp duty. But lenders may also charge fees to cover things such as loan features and the cost of providing the loan. These are charged in addition to the interest on the loan.
- You may have the option of paying the fees at the beginning of the loan, folding them into the loan balance (which means you pay interest on those fees over the life of your loan).
- There may also be ongoing fees, such as if it’s a ‘package loan’ which includes extra financial products such as rewards credit cards or other incentives.
- It’s a good idea to find out the fees of the loan before you sign up, and to look at the ‘comparison rate’ of the loan, which can give an indication of the total cost of a loan.
Features of the loan
- Different mortgages could offer different features, which could make the loan easier to manage (although they may also come with added fees). These could include the option of:
- an offset account or redraw facility
- ‘splitting’ the loan balance into part-variable and part-fixed rate
- applying online
- pre-approval.
Duration (term) of the loan
- The length of the loan can have a large impact on your repayments and what the loan will cost you over the long run. For example, a 30-year loan could mean your monthly repayments are less compared to the same loan with a 20-year term, as you have an extra 10 years to pay it off. But, you also have to pay an extra 10 years in interest with the 30 year loan, which could add thousands (even hundreds of thousands) onto the final cost of your mortgage.
- Canstar’s Mortgage Calculator could help you compare different options.
Your personal circumstances
- It’s a good idea to check if you may be entitled to any concessions or could possibly qualify for a particular type of loan. For example, many lenders offer deals to first home buyers, certain professionals (such as doctors), or those with an excellent credit score. There are a range of grants and concessions available to help first home buyers and low income families get a foot on the property ladder.
- The amount of deposit you have will determine the type of loan you can apply for, which is called ‘loan-to-value’ ratio (LVR). Typically, the more deposit you have, the more competitive the interest rate is likely to be.
Step 2: Approach lenders
When you’ve made your shortlist of candidates, it’s time to approach a lender and make a loan enquiry. There are two main ways that hopeful borrowers can approach a lender:
- Directly to a provider – at a branch, online or via a comparison site such as Canstar
- Via a mortgage broker.
How to approach a bank to make a home loan enquiry
- Start with your own bank: After researching the market to learn what’s on offer, it could be a wise idea to contact banks that you already have a relationship with to ask them about their loans. Sometimes, lenders will offer special rates, deals or packages to existing customers that you may not otherwise be able to learn about. It could be a good idea to ask them about deals they offer to new customers, to see how they stack up against what you’ve been offered. Often, your bank’s online banking portal will have information about how to apply for a home loan, and typically will have a special team that deals with home loans. It could be possible to apply online, or receive pre-approval online. If in doubt, you could try ringing your bank directly and asking for the home loans department.
- Contact shortlist of banks: After researching the market via Canstar’s selector tool and making your shortlist, contact each lender you’re considering to find out about their application processes. Some banks allow people to apply completely online, but it could be a good idea to start by making an enquiry online first, so you can receive greater detail about the conditions of the loans you’re looking at and what the application process involves. Then, compare each one.
Important to note: Each time you apply for a loan it’s recorded on your credit history. This could impact your credit score, which could have an impact on your ability to borrow money in the future.
Think carefully before making a formal application for a loan or for pre-approval. A loan enquiry – just asking a lender for information – is typically not recorded on a credit report. If in doubt, ask the lender.
→ Learn more: What Is A Credit Rating Or Credit Score?
How to use a mortgage broker
Mortgage brokers are service providers that sit in between lenders and borrowers. They can negotiate a loan on your behalf and organise the paperwork and other requirements. There are a large number of companies and individuals operating in this space, and they must have suitable qualifications and an Australian Credit Licence.
“Credit providers and brokers that are not licensed are operating illegally in Australia,” says the Australian Government’s Moneysmart website. “Make sure you only deal with a company or person who is licensed.”
You can use the Australian Securities and Investments Commission’s (ASIC) Professional Registers to check if your credit provider has been licensed or you can phone ASIC’s Infoline on 1300 300 630.
It’s important to note that not all mortgage brokers will necessarily offer the full range of home loans to you. Some are bound to a certain set of lenders. Mortgage brokers make their fees in a number of ways during the home loan process.
It could be a wise idea to find out what fees and charges apply, including any commissions or “trail fees” that a broker may earn from a bank.
→ Learn more about the mortgage broker process
Typically, a mortgage broker will talk to you about your needs and your financial circumstances, and help you to determine what loan or loans could suit you.
The broker then goes to the lenders (typically the ones “on their books”) and creates a list of options for you to consider. Once you choose a loan, the broker generally handles the application process (although you’ll most likely have to complete a number of online forms and supply all necessary information). The broker will then typically also co-ordinate the financial settlement of your purchase.
Step 3: Apply for a home loan
Now you’ve gathered enough information, after talking to your mortgage broker and/or making enquiries to lenders, it’s time to choose which loan you want to apply for.
While it could be tempting to apply for multiple loans at once, just in case, it’s important to remember this could impact your credit score and make it harder in the future to get a loan.
→ Explore: Do multiple loan applications affect my credit score?
How do I make a home loan application?
Applying for a home loan usually means filling out forms and providing any documents or information that the lender requires.
There are a few ways that you could apply for the home loan:
- If you made a loan enquiry previously, details of the application process should be included with that correspondence.
- A lender’s website will have information that tells you how to apply, or even a portal that allows you to apply fully online.
- If you’re going through a mortgage broker, they’ll manage the application process, which could also involve using an online portal to exchange and verify documents, and/or providing necessary information in person.
It’s a good idea to have access to a document scanner or a smartphone with a high-resolution camera, to allow you to send copies of all documents to your lender or broker via email or their online application portals.
It may be necessary, in some circumstances, to have a witness to your signature or copies of documents, such as a Justice of the Peace (the lender will likely have rules around this).
Usually, a lender will require documents presented in PDF format and photos in JPG. Bank, share and super statements can typically be downloaded in PDF format from the organisations’ online portals.
What documents are needed when applying for a home loan?
Canstar’s research into the application requirements of a number of lenders found different lenders may require different documents. Most banks typically require some or all of the following:
Home loan document checklist
Proof of identification
This will include a number of different types of ID – usually separated into ‘Primary’ and ‘Secondary’ ID.
Primary ID usually includes a photo, such as a driver’s licence, or a passport. Secondary ID typically includes documents such as a Medicare card, birth certificate or marriage certificate. Some lenders require you to take a photograph of yourself holding a specific form of ID.
It could be a good idea to make sure you have:
- at least one form of photographic ID
- two or three secondary ID documents.
Proof of employment
This may typically involve providing:
- a certain number of most recent payslips
- bank statements of the account that your wage is paid into
- a letter from your employer (especially if you’re a casual employee, have an irregular income or are paid for piecework)
- a lender could ask to see tax returns (particularly if you’re self-employed).
Extra income and assets
This could include:
- bank statements
- share earnings reports
- superannuation
- any other proof of how your extra income is earned
- a list of assets, which could include a car or house that you own outright. If you’re a landlord, you may be asked to provide a copy of any lease agreements you have in place.
Expenses
Most lenders will also want to see what you spend, such as:
- your household bills
- what you pay in rent
- see your transaction account and credit card statements. If you’re applying for a loan with a bank you use for most of your financial matters (such as transaction and savings accounts), they could source this information from your banking history
- If you’re renting, your lender may also ask for the contact details of your property manager or estate agent.
Debts
The lender will most likely do a credit check, but will also require you to provide details of any loans you already have, such as car or personal loans.
What you want to buy or build
Unless you’re applying for pre-approval, the bank will need details of what you intend to buy or build. This is so the lender can perform a bank valuation (have its specialists take a look at the property to see if the amount you are paying is an acceptable risk to it).
- If purchasing, they need a copy of the signed contract of sale
- If building, they’ll need a copy of the construction contract and details of the land’s location and price.
Insurance
Some lenders may require that you send them details of any insurance policies you may hold, such as life insurance or home and contents insurance.
Deposit or grant help
If you’re getting help to pay your loan, the lender could also ask for details. This would include:
- if you have (or plan to) applied for a grant
- if someone has given you money to boost your deposit. For example, if a relative was gifting you funds for a deposit, a lender may require a letter from that relative detailing the conditions of that gift or loan (such as if you have to pay it back).
Conveyancer’s or solicitor’s details
The bank or broker will need to know who’s doing your conveyancing – the legal work involved when buying a property. It could be a good idea to talk to your conveyancer about what level of involvement you need to have in the process, such as if you need to chase the bank or broker to find out if you have been approved or if they will do that for you.
What happens after I apply for a home loan?
When you’ve completed all of the application requirements, typically your lender or broker will keep in contact with you about its progress.
It could be a good idea to make sure the bank is aware of any finance clause in your contract, and when it expires. Typically, your conveyancing solicitor will be able to help you navigate through this area.
If you’re approved for the loan, the lender will typically issue you an official document (the home loan contract) that states the conditions of the loan. This would typically be forwarded to the seller’s solicitor (usually by your solicitor), which would mean any finance clause of the contract would be met.
The lender then has a set amount of time (as detailed in the contract) to settle the loan (or to provide the funds to the seller and activate your home loan). Seek professional advice.
If you’re not approved for the home loan, then Moneysmart suggest you seek information about why this occurred. Your conveyancing solicitor will generally be able to give you advice about what happens to the contract of sale, and if you would forfeit any deposit that you have paid.
Cover image source: fizkes/Shutterstock.com
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This article was reviewed by our Senior Finance Journalist Michael Lund before it was updated, as part of our fact-checking process.
A journalist for more than two decades, Amanda Horswill has reported on a galaxy of subjects, including property, lifestyle, hyper-local news, data journalism, the Arts and careers.
She’s served as the Editor of Brisbane News, Deputy Features Editor for The Sunday Mail, Deputy Editor – Digital at Quest Community News, and a host of other senior positions at News Corp, prior to joining Australia’s biggest financial comparison website, Canstar.
Amanda is fascinated with the ever-changing world of finance. A passionate believer in the motto “knowledge is power”, she strives to translate the news into practical information that will help readers make informed decisions about their future. While at Canstar, her work has been regularly referenced by publishers such as the Sydney Morning Herald , The Age, The New Daily and Yahoo Finance.
Amanda holds a Bachelor of Arts (Journalism, Media Studies and Production, and Public Relations) and a Graduate Certificate in Editing and Publishing, from the University of Southern Queensland.
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