Preparing for your home loan application

Getting ready to buy your first or next home? It’s such an exciting step to take and yet applying for a home loan can still feel a little daunting. It doesn’t have to be though - all you need is the right information and a little home loan prep before you apply, you could be warming your new home sweet home sooner than you think.

Lending rule 101s

Most financial institutions have basic lending rules or criteria that you’ll need to meet in order to borrow with them. Knowing how your financial situation stacks up against those rules now, can help set you up for success:

Steady, ongoing employment: Most lenders will want to see proof of full-time employment in the one job preferably for at least 6 months. For casual or contract workers that time-frame will likely increase to at least 12 months - and potentially even longer for self-employed applicants who may need to demonstrate ongoing self-employment for at least 2 years

Healthy deposit: While many lenders ask for a deposit of 20%, for borrowers who have a smaller deposit, Lenders Mortgage Insurance (LMI) can help bridge the deposit gap and provide an opportunity to get into the market with less than 20%, as the LMI provides Lenders with a way of managing the increased risk that comes with a smaller deposit.

Your credit history: A poor credit history is a red flag for lenders so things like missed or late payments on credit cards or personal loans, loan defaults or high levels of debt may land you in the ‘high-risk’ zone. To improve your debt position before you apply, prioritise paying down current debt and reducing your credit limit. What else can you do to improve your home loan approval chances? Find out here. 

Property specs: Lenders will look carefully at the specs of the property you’re looking to buy and may have specific lending rules in relation to type, size or location of properties. For example, ‘standard’ houses or units of more than 50m2 in internal area (not including balconies and car spaces), or properties located in cities and large towns rather than remote or regional areas.

Assets: When it comes to applying for a home loan, assets are your friend, but that doesn’t mean you need to be a property baron. Lenders want to see an asset position that matches an applicant's age and income. So for example, if you’re a 55 year old first home buyer with a reasonable income but no assets, lenders may make additional inquiries.

Guarantors: Having a family member or parent who can go guarantor on your loan, especially if you’re a first home buyer with a lower deposit, may assist your application. Having a guarantor may reduce your borrowing risk so lenders will see that as a plus.

Getting your paperwork prepped

Almost set to apply for your home loan? Getting your paperwork prepped can help streamline the process. To demonstrate your capacity to repay your loan to a lender, you’ll need to provide details about your income, assets, liabilities and expenses, including:

• Proof of employment: employment contracts, pay slips, tax returns, letters from your accountant.
• Current liabilities: Credit card and loan repayment history, outstanding debt and credit limits, HECS or other tertiary education debts.
• Ongoing expenses: An accurate estimate of your expenses including rent or mortgage repayments, utilities, entertainment expenses, insurances etc.
• Your assets: Property or vehicle values, share-holdings and super statements.
• Spending and savings: Bank statements for everyday transactions and savings amounts.

Ready to find a home loan that works as hard as you do?

Our Your Way Home Loans are designed to help health professionals and their families into their own home sooner with competitive rates, plus access to discounts for eligible essential workers with the Your Way Plus Home Loan.

Need a little expert guidance? Book a call back to speak with a Lending Specialist at home (Covid-depending), on the phone, or via a video call. Or, dive right in and start exploring some great home loan options here¹.