The ABC of Getting a Home Loan in Australia

If you have never taken out a home loan before – here are some tips that you should consider before getting a home loan.

1. Check your credit rating

Before approaching a lender for a home loan make sure that you have a clear understanding of what is on your credit report. Get a free copy of your credit history at Equifax and If you do find something, take immediate action. If the report contains any mistakes these have to be removed by writing to the credit provider. In the event that your credit history is very unhealthy you may need to approach a lender who specialises in Bad Credit Home Loans. Traditional lenders such as the major banks will generally not consider such loans. Applicants with a history of bad credit also must have a deposit.

2. Know your entitlements

If you qualify, you will receive the federal government’s First Home Owner’s Grant (FHOG). To find out if you are eligible check http://www.firsthome.gov.au. There are also state bonuses which you can find out about by checking with your office of state revenue.

3. 100-point check

If you’re approaching a lender for the first time — ie. you have no existing relationship with them — you’ll need to be “identified”. When you apply for a home loan you have to show identification up to the value of 100 points.

4. What Type of Home Loan should you consider?

What sort of a borrower are you? Should you look at a Prime Home Loan or an Alt Doc Home Loan? Are you a Non-conforming borrower? This will depend on the following. Your

– employment status;

– income position;

– available deposit;

– residency;

– age;

– availability of financials;

– credit history

5. What will the lenders need to know about you?

It’s not unusual for a home loan application form to take up to 10 pages. There are four main points lenders look for:

o Your capacity to repay.

o Your security property .

o Your existing assets.

o Your existing liabilities.

Some of the questions you can expect to be asked are:

o Your dependent children.

o How long have you lived at your current address?

o What do you owe and own?

o Your accountant’s details.

o Your personal insurance.

o Your credit cards.

6. Supporting Documentation for Your Loan Application

When it comes to the documents you need to support your application, most lenders are likely to ask for the same information. And yes, it is harder if you’re self-employed.

A PAYG applicant is expected to provide the following with their application:

o At least the two most recent pay slips, and income statements for previous financial year.

A self-employed applicant will need to submit:

o Past two years’ tax returns and your accountant’s details, or past two years’ financial statements and your accountant’s details. Some institutions may even ask for a profit and loss statement certified by a registered accountant.

Saving details:

o Bank statements including transaction for 90 days.

o Investment papers including managed funds or term deposits.

o What you owe and own.

o Details of personal loans, credit cards or leases. Latest statements should be produced to support these loans.

o Superannuation details.
If you do not have the necessary documentation – do not despair. You may be able to borrow as an Alt Doc Home Loan Option. While your LVR will be slightly lower than with the Full Doc loans (the loan application process will be far more straight forward.

7. How much can you borrow?

The amount you can borrow depends on what you’re buying and how much money you have left when you take out all your fixed commitments from your net income.

If you’re buying a home, most lenders will let you borrow up to 80 percent of the purchase price, or 95 percent if you are willing to take on mortgage insurance.

8. Don’t Forget the Loan and Purchase Fees.

You should be aware of all the fees and charges that come part and parcel with a new home as well as with a new home loan. There’s much more to it than just a deposit. To avoid any last-minute surprises you need to ensure that you have enough to cover the cost of conveyancing, applicable stamp duty on purchase as well as stamp duty on mortgage. There are also various application fees, lender valuation fees and even possible mortgage insurance fees (depending on your Loan to Value Ratio – LVR).