What is the process of getting a home loan in Australia?

Buying a home is an exciting journey, and a rite of passage for many Australians. However, if it is your first time getting into the property market, you may be feeling overwhelmed by the many steps involved in getting a home loan and buying your first property. Understanding each stage of the process is essential to navigating the journey smoothly and ensuring a quick and smooth purchase. This article breaks down the process of getting a home loan into clear, actionable steps from initial consultation to the exciting moment of receiving the keys to your new home.

Step 1: Speaking with a Mortgage Broker

While it isn't a legal requirement to use a mortgage broker, we highly recommend you consider using one, because of several main reasons. Firstly, a mortgage broker is experienced in home loans, and they can guide you through the entire process, streamlining you through as smoothly as possible. They can answer all your questions, and give you great advice. They will explain different mortgage types, interest rates, and payment plans, helping you make informed decisions.

Secondly, mortgage brokers have access to a wide range of lenders, meaning they can compare the best rates for you quickly, saving you time checking the rates and fine print at each bank. Also, since they deal with large numbers of mortgages, they have bargaining power with the lenders, and they can access lower interest rates than you can find yourself.

The best part about using a mortgage broker is that they are usually free of charge! At EE Mortgages, our services are completely free of charge. If you are unsure about what a broker offers, contact us using the form below and speak to an expert about how we can help, with no obligation to use our services.

Step 2: Submitting Documentation

After you have spoken to your mortgage broker, they will give you a few options of loan products that are best suited for you, whether you want fixed or variable interest rates, whether you need an offset account, and finding you the lowest fees and rates available. Once you have decided which loan product you want, you need to submit documentation.

This typically includes your ID, proof of income, employment history, bank statements, assets and debts (including HECS and credit cards). These documents allows lenders to assess your financial health and determine your loan eligibility. Organising these documents early can significantly expedite the application process. It's crucial to ensure all information is accurate and up-to-date to avoid delays. See our article on documentation required for home loans to ensure you haven't missed anything.

An important point to note about your bank statements is that the lender will scrutinise your spending habits, including the amounts and type of expenditure. If you are spending excessive amounts on recreational or gambling activities, this could seriously affect your borrowing capacity. Lenders usually require the previous 3 months of statements, so if you are planning to buy property soon, start cutting back on your spending so that it looks good for the lender.

Step 3: Submitting Home Loan Application

After gathering all your documentation, your mortgage broker will help you fill out and submit your home loan application. This application is your formal request for funding. It’s vital to double-check all entries for accuracy and completeness to prevent any potential hurdles in your loan approval.

Step 4: Receiving Conditional Approval

After reviewing your application and documents, if a lender finds you potentially creditworthy, they will issue a conditional approval. This approval is "conditional" based on certain criteria, such as the successful valuation of the property you intend to buy. While not a final guarantee, it does indicate the amount the lender is potentially willing to finance and allows you to shop for homes within that price range. This is your borrowing capacity, but remember that you also need your deposit and money for fees, such as stamp duty and conveyancing/solicitor fees.

Step 5: Finding a Property and Valuing It

This is the exciting part, where you can start shopping for a home! With your budget in mind, have a look online at Domain.com.au and RealEstate.com.au to search the areas you would like to buy. Look at recently sold prices to gauge what the properties are worth. The listing prices and auction guides tend to underquote, so don't be fooled by these. Go to a lot of open inspections to see what each property is like in person (photos will hide many of the flaws), and attend auctions to get a feel for the process.

When you have found a property you like, ask your mortgage broker to provide a valuation. This valuation ensures the property is worth the sale price and is crucial for securing final loan approval. If you offer to buy the property for a price that's higher than the valuation, the bank may not approve your loan. 

Step 6: Speak to a Solicitor or Conveyancer

When you have found a property you like, you need to enlist the services of either a solicitor or conveyancer to assist you. This step is where they read the contract for purchase of the property and advise you of any important details. They will guide you through the legal process of signing contracts, paying deposits, exchanging contracts, and settling. 

Step 7: Pay Deposit and Sign Contract on The Property

After your solicitor or conveyancer has looked at the contract for you and you decide you want to buy the property, the deposit (usually 5% or 10%) is paid when the contract is signed and exchanged, which means you commit to buying the property. From this date, there is a settlement period which is usually around 6 weeks, in which time you need to finalise your loan and any other documents required. Your mortgage broker and solicitor/conveyancer will guide you through this process.

Step 8: Receiving Unconditional Approval

When the valuation checks out and all other conditions are met, the lender will provide unconditional approval on your loan. This approval confirms the lender's commitment to finance your purchase, allowing you to proceed with full confidence to the next steps.

Step 9: Reviewing and Signing Loan Documents

Once your loan is unconditionally approved, the lender will send through the loan documents for your review. These documents outline the terms of your mortgage, including the loan amount, interest rate, repayment schedule, fees, and other legal stipulations. Review these documents carefully, preferably with the aid of a legal professional, to ensure everything is as agreed and that there are no surprises. If you are happy with the terms, sign the loan documents so they can begin the process of setting up your loan.

Step 10: Settlement Day - Receiving Keys to Your Home

Settlement day marks the final step in the home buying process. On this day, legal representatives from both parties will finalise the transfer of property ownership. All necessary documents are exchanged, and the remaining balance of the purchase price is paid to the seller from the lender. Once everything is settled, you will receive the keys to your new home. 

Conclusion

Each step in buying a property is crucial and requires careful attention. By understanding and following these steps, you can ensure a hassle-free process and avoid common pitfalls. Remember, speak to one of our expert mortgage brokers, who will help you through this process with ease, completely free of charge!