5 things you must do before applying for a home loan

With more home loan options available then ever, it's important to be prepared.

It can be a long and complex road to owning a home, and for first-timers the application process alone can seem like a hugely daunting process.

To help you decide on the right product and get your application approved, preparation is absolutely key so here are some things you can start doing today:

1. Get your documents together.

Applying for a home loan (and getting it approved quickly) will mean providing your lender with a long list of documents - so it pays to get it organised before you even start thinking about applying.

Start to gather things like proof of ID, proof of income and details of your assets and debts. This includes your wage or salary, superannuation, any government income, and income from rental properties and investments.

They’ll also need to know about your debts. Be sure to take in proof of savings and information on shares, property or significant assets. If you’re self-employed, you’ll need your accountant’s details and the last two years of financial statements.

2. Work out how much you can borrow

Before you start applying for loans, you’ll also need to work out how much you can actually afford to borrow and what your repayments will be. 

While saving for a deposit can be grueling, remember the more you put down, the less you have to borrow and more you will save in interest.  

If your deposit is over 20 per cent you’ll be exempt from paying Lenders Mortgage Insurance premium.

Many lenders have online mortgage calculators that will help you get an idea of repayments. Don’t stretch yourself too thin - be sure to budget for general living costs and unforeseen emergencies.

3.Decide on your loan

There are more home loan options available then ever, which can just add to the confusion of choosing the right one for you.

There’s principal and interest, interest only, variable, fixed, offset, redraw, variable, split rate home loans, and various features which different lenders will offer.

A good place to start is to work out the features you need from your loan, while taking into account associated fees from your lender.

Once you’ve researched your options, talk to the experts who can help you decide on what will suit you best.

4. Find out your credit rating

Your credit rating will be the first thing that lenders look at when deciding to offer you the loan, as well as the terms and the amount so it pays to be armed with this information.

Finding out your credit rating before you start applying will also mean you can correct any mistakes or question unrecognised bills.

Your credit rating is a record of how good you are at paying bills and managing debt, and helps the lender determine the level of risk in lending you money.

This will include personal loans, car loans and even mobile phone plans.  Things like having an overdrawn bank account, missing credit cards repayments and even falling behind on your rent can impact your credit rating. 

Obtaining your credit rating is free from one of three national CRBs - Veda, Dun & Bradstreet and Experian.

5. Budget for fees

First homebuyers are often shocked at the number of expenses involved and for good reason. Mortgage application fees, legal and conveyance advice, Lenders Mortgage Insurance (if your deposit is less than 20 per cent), building inspection fees and bank set up fees - the upfront costs can be add up to anywhere from 7-11 per cent.

While this can be daunting, don’t forget about the First Home Owner Grant that offsets the effect of GST on home ownership.

What’s next?

You’ve got your documents organised, you know what product you want and how much you want to borrow. Now it’s time for expert advice, so be sure to speak to a range of people so you can choose the right mortgage for you.

DOCUMENTATION CHECKLIST

  • Full employment history
  • Current and previous addresses
  • Details of your current assets - car, motorbike, boat, collectibles, etc.
  • Your income and outgoings
  • Current records of your salary
  • Latest tax return/notice of assessment
  • If self-employed, three years' worth of tax returns
  • A letter from your employer stating the tenure of your employment
  • ID - 100 points, including passport
  • Copies of recent credit card statements, confirming your credit limits
  • Completed application for First Home Owner Grant
  • Front page of the sales contract
  • Six months’ worth of bank statements, to confirm genuine savings pattern
  • Statutory declaration stating that funds gifted for the deposit do not need to be repaid (if applicable)
  • Council rates notice for any properties you own, such as investment properties
  • If purchasing an investment property, confirmation of rental income for the property (real estate agency letter)

This article is brought to you by NAB.

This article is sponsored by NAB. NAB had no role in its preparation. NAB does not imply, endorse, and is not accountable for, any views expressed in this article. To the extent permitted by law, NAB accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you in connection with your use of this website.

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