Buying a home is a straightforward process. You just need to fill in your application, get verification, then a find a property. Your lender then values this property, and if it meets their pricing guide, then loan approval occurs. So, what’s needed to get your application started?
The Main Points We’ll Cover
+ Identification – your lender wants to know who you are.
+ Proof of income – from all sources.
+ Asset details – vehicles, property and other goods.
+ Debts – what is owed.
+ The home loan as a commitment – why we ask a lot of questions.
A lender needs to know who you are, so this means producing identification. The best forms of ID are your driver license and birth certificate. If you don’t have a license, then a passport is fine. You’ll also need to produce your Medicare card or a recent utility bill.
Proof of Income
Most lenders also want to see evidence of income. Depending on your employment situation, there are a number of ways you can produce this. These are as follows:
Wage or salary earner – As a wage or salary earner, you’ll need to supply a recent bank statement or three recent payslips. Should you not have these, then a letter from your employer stating your employment details will suffice.
Self-employed – Contractors or business owners need to deliver their last two financial statements and accountant’s details.
Self-funded retiree – Superannuation payment recipients need to present a bank statement showing their income.
Government income – Centrelink payees must provide a government or bank statement showing earnings.
Rental property earnings – Investment property owners need to supply a lease agreement or bank statements. Alternatively, a property management letter indicating rental earnings is adequate.
Investment proceeds – Share and dividend income earners need to provide a shareholder’s certificate or current dividend statement notice.
All lenders want to see proof of what you own. Assets typically include vehicles, shares, property and land. Plus, if you’re a business owner, then your businesses goodwill and equipment are also included as assets. Of course, you’ll need to supply supporting documentation to prove that you own these assets.
Lenders want to know what your existing financial commitments are. Therefore, if you have debts, they will want to know what these are as well. Debts typically include credit cards, personal loans, store cards and leases.
Consequently, if your credit card limit is high and maxed-out, then consider reducing the limit and paying off the card. Credit card limits, even if paid-off, reduce your borrowing capacity. For instance, for every $1,000 of limit your borrowing power is reduced by $4,000. Thus, if you have an $8,000 limit on your card, this can reduce your borrowing power by $32,000.
An ideal scenario is to apply for a loan without having any debt. Accordingly, a lender views this as minimal risk, especially if you have a favourable credit rating.
The Home Loan as a Commitment
A home loan is a major commitment. Hence, your lender will want to know as much about you and your financial status as possible. This includes:
Residential status – A lender may want to know about your living arrangements. They may ask if you’re renting, and from whom. Furthermore, they will want the details of the property owner or manager. Then, they can determine if you pay your rent on time, every time.
First home owners grant – Your lender may ask if you’re a first home buyer and if you’ve applied for the grant. However, if you haven’t, they’ll suggest that you do, and then present them with the completed application.
Building a new property – If you’re building, then your lender will want to see a negotiated contract.
Gifts – If you’re receiving a monetary gift, they’ll want a letter from your benefactor stating contribution size and repayment conditions.