Three Things You Need to Get Your Home Loan Approved

Applying for a home loan? Here’s how you can help the approval process.

Intending to apply for a home loan? You probably already know that you’ll need to settle on a budget and decide what type of loan you’re looking for. But do you know what’s really involved to get your home loan approved?

Lenders have a detailed process they need to go through, and they’ll need to see a lot of documentation from you. To give yourself the best chance of success, you need three things: paperwork, patience and preparation.

Paperwork

Let’s start with the nuts and bolts. If you have all your documentation ready to go before you start the application, it will run a lot more smoothly. This is an area where using a mortgage broker can really help, as they’ll know ahead of time what the bank expects to see and can help you get organised.

Identification

Lenders must verify your identity as part of the loan application. They’ll need to see primary identification, such as:

• A drivers’ licence
• A passport
• Another form of photo ID such as a Proof of Age card

If you don’t have sufficient primary ID, you might be able to provide other forms, like:

• A birth certificate
• A Medicare card and/or Health Care card
• Credit or debit cards

Income

Proving your income is critical to the success of your application./p>

For salaried employees, this is fairly straightforward. You’ll need:

• Your last two payslips
• Your most recent Group Certificate or Payment Summary

For self-employed people, expect to provide:

• Your last two ATO tax assessments
• Your last two tax returns, both personal and business
• Depending on the structure of your business, you may need to adduce profit & loss and cash flow statements.

You’ll also need documentation for any other form of income you receive, for example:

• A formal signed lease and rental statement if you receive rental income
• Dividend and bank statements if you earn money from shares
• Centrelink statements if you receive Family Tax Benefit or other Centrelink payments

Lenders do vary in their requirements, so if you don’t have comprehensive records you may still be able to get a loan. Some banks will assess a self employed person based on the last 12 months instead of averaging across the past 24, which is helpful for new business owners or people who have had very strong growth in the last year. There are also ‘low doc’ loans available if you have even fewer documents to provide. These are higher interest loans, though, so if you do have the option to go with a traditional loan, you’ll save money.

Expenditure

What comes in must go out. Your lender will want to see that your outgoings are less than your income. To that end, be prepared to provide the last six months’ worth of bank statements for all your accounts, including transaction, savings and credit card accounts.

If you’ve paid out more than usual, perhaps for orthodontics, a once-in-a-lifetime holiday or a home renovation, it’s a good idea to attach a brief explanation confirming why the expense was necessary and that it is now at an end (or has a set end date).

Assets and liabilities

Your capacity to repay the loan is also affected by any other debts or assets you have.

The bank will ask for:

• Statements from your savings account and/or term deposits
• Share portfolio statements
• Superannuation balance statements
• Estimated values for any large assets you own, including property, vehicles, artwork and jewellery
• Details of any existing loans, including personal, car and home loans. Car leases, ‘interest free’ terms on white goods and Afterpay/Zippay commitments are all loans in the eyes of the bank.

Patience

The timeline for loan approval varies significantly. When the market is strong, lenders are dealing with a higher volume of loans and timelines can be extended. It is also often slower over the Christmas holidays, with people on leave.

In general, allow 4-6 weeks as a minimum. Here’s what the bank has to do in that time:

• Assess all your documentation, which takes around 5 business days. If you’re missing something, there will be a delay until you are able to provide it (or an alternative).
• Value the property you’re buying. If it’s a house and land package, the valuation will be done on the basis of the completed build. The valuer is booked by the bank, visits the property and writes a report which is reviewed by the bank. This takes around 5 business days.
• Let you know if you need Lenders’ Mortgage Insurance (LMI). If you do, you’ll need to have this in place before the loan can be approved. Allow up to 2 business days.
• Send you the formal approval paperwork and proceed to settlement.

Preparation

Getting pre-approval for your loan makes everything easier.

For a pre-approval application, you’ll provide all the same documents as above. The bank will then offer a conditional approval that sets out:

• How much money they’ll be willing to lend you based on the evidence.
• What conditions the offer is subject to. Commonly, the offer will specify that it is subject to a property valuation, and confirmation of your financial information.
• The timeframe in which the pre-approval is valid; usually 3-6 months.

If you have a pre-approval in hand, you can budget with confidence. The bank already has all the documents in hand and can go straight to the valuation, so you can get your home loan approved faster and with far less stress.