A home loan, otherwise known as a mortgage, is something many of us will apply for at some point in our lives. For most people, it’s the biggest loan they ever apply for, and they will spend decades paying it off.
In Australia, about 37% of homeowners have a home loan. There are many reasons to consider a home loan, and lots of things to consider when applying for one. If you do it right, a home loan can allow you to buy your dream home, but there are many things to consider and lots of potential challenges involved.
In this article, we’ll walk through the main reasons to consider a home loan and how to get started.
Why Get a Home Loan?
- It’s a manageable way to meet the large expense of purchasing a home. With a loan you can break down the total cost into monthly payments, allowing you to gradually pay for your home over many years.
- It makes property ownership accessible for first-time buyers who typically don’t have a huge amount of money saved or existing assets.
- It makes it possible to buy a home as an investment project, freeing up your capital for other investments.
How to Get a Home Loan
The process of getting a home loan is not overly complex, but it does require a lot of preparation and a solid understanding of what you’re doing. Failing to prepare in advance means your application might fail, or you might end up with an unfavourable deal. Here’s our step-by-step guide to getting a home loan.
1. Work out What you Can Realistically Afford
The first step on the way to getting a mortgage is working out how much you can afford. This depends on a number of factors, and it’s very important not to overestimate your capabilities here. At the same time, you don’t want to undersell yourself. Consider things like:
- Your income (and partner’s income)
- Current expenses and debts
- The interest rate on the loans you’ll be applying for
- The required down payment — usually, this is 20% of the properties value, but it’s possible to find lenders who may allow you to deposit as little as 5%
Once you have a good idea of how much you can afford to pay, both as a down payment and a recurring monthly payment, you'll be able to apply for your home loan with much more certainty and confidence.
2. Have the Right Documents in Order
Applying for a mortgage is a very paper-heavy process. You’ll need a wide range of different documents and types of evidence to prove to your lender that you have what it takes to meet the commitments of the loan for many years to come.
It’s important to gather as many of the relevant documents as possible before you begin the application process. Here are just some of the documents you’ll need:
- Proof of income in the form of payslips or tax returns
- Bank statements and proof of savings
- A list of your current assets and liabilities, such as any credit card or personal loan debts
- Multiple examples of ID — things like a passport, driver’s license, or birth certificate. You’ll typically need to provide 100 points of ID and each ID type is weighted — for example, a passport is worth 70 points and a driver’s license is worth 40.
3. Choose the Right Loan
Next, it’s time to decide on the right loan for you. If you spent time working out how much you can realistically afford and building up a strong case for your application this stage will be much easier.
The amount you’ll be able to borrow depends on a number of factors like your age, job status, credit history, whether you have any dependents, and more. There might be many different options available to you, and for inexperienced people, it can be tough to make sense of everything. This is one area where an experienced mortgage broker can be a huge help.
4. Get Pre-Approved
Pre-approval is when a lender agrees to lend a certain amount to you before you have decided on a specific property or made a full application. Your lender will assess your situation, look at all the documentation and evidence you provided, and decide if they want to approve you for your chosen loan.
5. Apply for the Loan and get Approved
The final step of the process is to make a full application for your mortgage, which will require all the evidence and documentation you gathered previously. Once your loan has been approved, you can make a purchase and begin the process of moving into your new home!
Applying for a mortgage is a huge step and one of the biggest financial decisions you’ll ever make. It’s always best to work with a professional mortgage broker who can walk you through the process, help you access the best possible loans for you, and answer any questions you might have.
At Lynam Home Loans, we’ve been helping people in and around Mackay, Queensland successfully apply for home loans and get great deals for many years. Contact us to find out how we can help you do the same.