How to apply for a home loan.

Mastering the home loan application process is key to reaching your goal of buying a home.
 
If you’re one of the many hopeful first home buyers a bit mystified by the process of filling out a home loan application, then you’re not alone. Like many of the big things in life, if you break it down into small, manageable tasks, you’ll tick it off your list of things to do in no time. 

Whether you’re about to apply for a home loan to buy an investment property or are researching how to prepare a joint home loan application, this handy guide will show you the steps to take to make it happen:

Improve your financial fitness.

If you haven’t already bit the bullet and started cleaning up your finances, then now is a good time to double down on getting money smart. You’ll need to demonstrate to lenders that you’re capable of budgeting, have solid savings habits and a strong track record of repaying your debts on time. 

Here are 7 ways to get your finances in the best shape before applying for a home loan:

1. Clean up your credit cards by cancelling cards, reducing credit limits and paying down any outstanding balances. Reducing your credit limits is important as banks count the whole amount of credit available to you as a potential liability, even if you don’t use it. Same goes for Buy Now Pay Later services.

2. Does HECs affect a home loan application? The short answer is no; it won’t affect the chances of you getting a home loan. But it may reduce your maximum borrowing amount. If you can, start making voluntary payments to your loan or try to pay it off in full before you apply for a home loan. 

3. Cancel subscriptions you can do without. Recurring payments for things like streaming services, gym memberships, and wine clubs all add up over the course of a year. Breaking up with subscriptions may be hard to do, but it will boost your chances of buying a home.

4. Pay your rent, fines, car loan and bills on time, every time to show you’ve got a good credit history. If you’ve got a stack of overdue bill notices, get into the habit of paying your bills before the due date or set up auto payments to have the amount deducted from your account without lifting a finger.      

5. Boost your deposit by keeping your savings in a high interest savings account like a HomeME account.

6. Build a buffer. Apart from paying a deposit, there are other costs involved with buying a home, including conveyancing fees, building and pest inspections, home insurance, moving costs and potentially stamp duty.

7. Map out an exit strategy. If you’re in your 40s or older, it’s wise to have an exit plan in place to show lenders how you plan to pay off your loan before retirement. This may include selling and downsizing to a smaller property or using your superannuation to pay off the balance.

Get your paperwork in order.

A good place to start is downloading and reading through the ME Bank home loan application form. It’ll help you prepare the relevant information needed to apply for a home loan. 

If you’re a good record-keeper, getting the relevant paperwork together will be a breeze. To build a strong home loan application, you’ll need the following:

• Two consecutive recent payslips from your job or financial records from your business if you’re a freelancer or sole trader.
• Bank statements documenting your expenses from the past 3–6 months.
• Proof of any other income you receive (share dividends, rental property income or Centrelink payments)
• 100 points of identification (usually a combination of your passport, Medicare card, birth certificate or other approved forms of ID).
• Details of your accountant or bookkeeper if you run your own business or side hustle. 
• Documentation for any existing loans like car loans and student loans. 

Assess your home loan options.

There are plenty of different home loans out there, so it makes sense to research your options to find the best home loan to suit your needs.  
 
Using a borrowing power calculator to work out what you can afford is a good starting point. From there you can explore different home loans to find out which is best for you. Working out if you need an offset account, redraw facility, attached credit card or specific loan terms will help you narrow down the field. Offset accounts provide a helpful way to park excess funds you may need in the future (for things like renovations) while still reducing the interest you pay on the mortgage.
 
One big decision you’ll be faced with is choosing between a loan with a variable interest rate or fixed interest rate. Variable interest rate loans fluctuate when the Reserve Bank (and your bank) adjusts interest rates throughout the year. Fixed rate home loans are locked in at a specific percentage for a period of time (usually 1–5 years). There are pros and cons to each loan type, so weigh them all up before making your decision.
 
Confused? Try speaking to a home loan expert to take the guesswork out of it.

Make sure everyone is on the same page.

These days many people who are priced out of the market are pooling their resources and buying homes with a partner, family members or friends. If you’re interested in a joint home loan application, you’ll need to consider a few more things than when applying for a home loan. These include:

• If you are buying a place with a co-owner who already has property, you won’t be able to access schemes like the Federal Government’s Home Guarantee Scheme.
• You may need to engage a lawyer to draw up an agreement covering common ownership issues including what happens if one owner wants to sell their stake and how the loan will be serviced if one party can’t pay their share of the mortgage repayments.
• If the property is an investment for one or both of you, you’ll need to iron out the details and put it all in writing as complications could crop up when claiming tax deductions.  

While you may trust your best bud to do the right thing, there are many cautionary tales of joint home ownership gone wrong. Getting everyone on the same page is key to keeping your friendships (and finances) intact!  

Aim for home loan pre-approval.

Lots of prospective home buyers aim to get pre-approval (also known as conditional approval) before finalising their official home loan when signing on the dotted line.
 
Pre-approval usually lasts for three months and will give you the confidence to start looking at homes and bidding on properties at auctions. The best part is that the home loan pre-approval process can usually be started online. Simply fill out or download the application form online to get the ball rolling. Feeling stuck on a tricky section? Contact a home loan expert to get some help with any curly questions.
 
So how long does a home loan take to get approved? Pre-approval can come through in as little as a few hours or as long as a few days (or weeks) depending on a range of factors. 

Sign on the dotted line.

So, you finally landed that knock-out bid at auction and secured the property you’ve saved for. Congratulations! Now you’ll need to look at contracts and finalise the home loan.
 
Your lender or mortgage expert will help guide you through this process, but as a starting point, you’ll need a conveyancer to review the contracts on your behalf. At this stage your lender may also ask for further paperwork, like proof of home insurance for the property.
 
The laws around signing of mortgage documents vary from state to state, so depending on where you live, you may also need a certified witness to review your signatures.
 
No matter if you end up buying a cute, retro one-bedder to call your own or a new home you plan to grow old in with your future family, the home loan application process is made much easier with the help of an industry insider who can guide you through it, step by step.

Talk to ME.