How to prepare for a home loan application
The thought of completing a home loan application may seem overwhelming, but it doesn’t have to be a stressful process. As with many things in life, a little preparation goes a long way… Home loan applications need not be a daunting thought!
During the application process there are a few things you can expect to encounter. Lenders approve your home loan based on the information provided in your application, so familiarising yourself with the information needed, requirements you need to meet and some general home loan terms, can help ease the process and relieve any anxiety you may be experiencing.
Lenders typically ask for as much information as possible. You will require photographic proof of identity, such as a valid passport or driving licence, although proof of age card may also be adequate. Secondary documentation is also likely to be needed, such as a Medicare card, rates notice or utility bills no more than three months old.
Proof of income
It is important that you can fully illustrate your financial situation. To determine the total borrowing available, your payslips, employer references and bank statements will be important elements to include in your application.
Declaration of assets
For lenders to fully establish borrowing capacity, it is important to declare anything you own. Bank statements for your savings accounts and term deposit accounts are worth bringing with you when applying.
Establishing liabilities or debts
It is also imperative to establish any outstanding debt you have at the time of the loan application. Financial obligations you should consider can include other loans, credit cards, Higher Education Contribution Schemes (HECS). You must also consider all other repayments or debts you may have in the future.
Your expenses and budgeting
Establishing your ability to make your loan repayments, whether monthly or otherwise, is crucial to lenders when approving your home loan application.
When applying, be prepared to account for all your monthly outgoings and expenses. You should document all outgoings, whether they seem small or large. Account for rent, utility bills, phone bills, travel and living expenses. Also factor in leisure activities and expenses such as gym memberships, plus any insurance premiums you pay.
Being realistic and thorough in your preparation before your home loan application will not only help your lender evaluate your situation, it will also give you a good indication of what you can realistically afford.
While you may need to overcome a few obstacles in the application process, arriving prepared can make the whole process run a lot smoother.
Self-employed does not mean ‘on your own’
For many Australians, self-employment can allow flexibility and more freedom. However, a drawback for some self-employed individuals is difficulty in obtaining home loans. With many lenders tightening their credit policies, borrowing can become tricky, especially for the self-employed.
For the self-employed, meeting the standard home loan lending criteria can be difficult, the process can take longer and larger deposits are required due to the increased risk of cash-flow fluctuation.
‘Low-doc’ home loan option
The low-doc home loan option is a more financing solution for the self-employed who have income and assets, but may not have the usual paperwork and standard income verification documents necessary to apply for a loan.
They generally do not require traditional proof of income. Lender dependant, borrowers will normally need to provide confirmation of their self-employment status – such as a registered ABN held for over two years.
Up-to-date tax returns and financial statements are generally needed to confirm and verify income. Lenders may even require business activity statements (BAS), trading statements or a letter from your accountant.
However, there are often limits on the borrowing total, with lenders only allowing you to borrow up to 80 per cent of the total purchase price before the additional requirement of lender’s mortgage insurance.
Traditionally, the interest rate offered is higher than for the standard variable rate, but recently this has been changing to bring these to the same level. Also, you can often transfer to a better rate once you are able to demonstrate your income.
Not every lender will accept home loans from low-doc borrowers and some will require more documentation, but this shouldn’t deter self-employed borrowers from seeking home loan approval.
If you have a new home loan enquiry or would like to discuss refinancing your loans to a better rate, please don’t hesitate to contact us on 8451 1500.
To your success,
Sam & Matt
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