Applying for a home loan to buy a property is a straightforward process, providing you have the required documents. Simply put, all you need to do is fill in an application, get verification, then find a home. Once you find a property, your lender then values this, and if it meets their pricing guide, then loan approval occurs. So, what’s needed to get your application started?
A lender needs to know who you are before applying for a home loan. So, this means producing identification and meeting a 100-point ID check. The best forms of ID are your:
- Driver’s license
- Birth certificate
- Medicare Card
- Utility bill
- Citizenship certificate
- Tax assessment.
Female applicants who have married, or remarried after divorce, will also need to supply their initial marriage certificate, divorce documents, and recent marriage certificate. Why? Well, this gives the lender a change of name trail. It’s also a good idea to make sure that the spelling of your name is the same on each and every document. Otherwise, you may find that your lender won’t accept the ID as an item of identity proof.
Most lenders also want to see evidence of income. Depending on your employment situation, there are several 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 minimum of 3-months of bank statements and pay slips. These must be the most recent. Should you not have these, then a letter from your employer stating your employment details – type of employment, amount paid and payment frequency – will suffice. This letter must also state the name, address, and contact details of your employer. A company letterhead is usually enough.
- Self-employed – Contractors or business owners need to provide their lender with their last ATO Notice of Assessment, this must be no older than 18-months. Also, you’ll need to supply a recent Business Tax Return, Profit and Loss Statement and Balance Sheet no older than 18-months. Your lender may also ask for a tax portal statement and your accountant’s details.
- Self-funded retiree – Superannuation payment recipients need to present a bank statement showing their income.
- Government income – Centrelink payees, including Family Tax Benefit recipients, 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.
- Child support – If you have children from another relationship and get child support, then this is income. A recent statement from the agency stating the amount you receive is enough evidence of payment.
- Savings history – A recent bank statement that shows the balance of your bank account/s and a historical reference of at least 3-months of savings is a requirement. This document not only shows a lender you’re able to save, but it also indicates that you manage your money well.
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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 ability. For instance, every $1,000 of limit reduces your borrowing power 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 when applying for a home loan is to have no other existing debt. Accordingly, a lender views this as minimal risk, especially if you have a strong credit rating.
A home loan is a major financial commitment. Hence, your lender will want to know as much about you and your financial status as possible including:
- 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 decide 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. Most lenders will help you with this application 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.
- Number of dependents – The number of children you have, and their ages are of interest to your lender because a child reduces your disposable income. While the formula that lenders use varies from lender-to-lender when you have dependents, the general rule of thumb is that one dependent will reduce your borrowing power by $50,000.
But, this isn’t the only financial consideration lenders make with dependents, they’ll also add around $400 per month per child to your monthly living expenses. Therefore, if you receive the Family Tax Benefit or Child Support, then it’s important to let your lender know as they will improve your loan application success.