Purchasing a property can be an exciting time, but finding the right one to buy is only part of the journey. Once you have fallen in love with a house or unit you need to ensure you are financially ready to take the plunge. Not being prepared may cause a hold up at settlement or leave you missing out on the home altogether.
So, how can you start preparing to get a home loan?
Documents required to be approved for a loan
Lenders usually ask for a lot of supporting documentation when taking on loan applications. To streamline the process, you should ensure you have all or as much of the required documentation ready at the same time you submit the application. This will prevent delays and can speed up the approval time.
Payslips, tax returns and bank statements (including those for credit card and other loan accounts) are the most important documents to have handy, as well as:
- at least 100 points of ID, such as your birth certificate or passport, drivers license and/or Medicare card;
- evidence of the deposit, such as a statement from your savings account;
- last year’s group certificate;
- a hard copy bank statement (i.e. one received in the post);
- three months’ worth of bank statements for the account your deposit is being held in; and
- a recent rental statement for any investment properties (if applicable).
In Queensland, you will also need the first two pages of the contract of sale to obtain formal approval of your loan.
Self Employed applicants will generally be asked to provide:
- ABN for Low Doc/No Doc loans; or
- two years’ worth of personal tax returns and tax assessment notices; and
- two years’ worth of financial statements; and
- two years’ worth of company, partnership or trust tax returns.
Boost your savings
While you should aim to save a minimum of 5% of the property’s purchase price, the larger your deposit the easier it will be to secure a loan. It will also work out to be cheaper!
If you borrow 80% of the purchase price or less, then you will not be required to pay any Lenders Mortgage Insurance (LMI), whereas a deposit of less than 20% usually bears the requirement that LMI is to be paid.
It is not just the size of the deposit that is important but also the way you save as you will need to be able to prove that you have accumulated genuine savings. Lenders like to see that you have built up savings either in cash, shares or a combination of both, as this gives them assurance that you are committed to setting cash aside and can meet the mortgage repayments. If you do not have savings in one of these formats then you may need to wait up to three months for the lender to accept your application.
Meeting the lending criteria
Each lender will have its own criteria to meet before approval is granted. Some of these include:
- Employment in the applicant’s current job for a period of at least six months, or 12 months for casual and contract employees. Self-employed applicants may find a two-year minimum is required.
- Strong credit and payment history, including little or no debt and few or no recent personal loan or credit card applications. If you are a few months away from applying for a loan, use this time to pay down any remaining debt, do not make any further applications for loans or credit cards and ensure you pay your bills on time.
- The type of property (including a minimum 50m2 internal area) and its location. Some lenders will be reluctant to loan on property purchases outside of major towns or cities but will gladly lend to people looking to buy in high capital growth areas.
- Personal circumstances such as age, other assets, earning capacity and dependents will be considered. The exact circumstances will vary from lender to lender, with some even assessing spend on streaming services and ride-sharing.
- Finally, having a guarantor is one of the best ways to get a loan of up to 100% of the purchase price approved. This option is common with young people and first home buyers whose parents may want to help them get a foot on the property ladder.
For further tips and advice on how to get into your first home sooner, contact our mortgage brokers in Cairns today.