So, you’re thinking about buying a home – woohoo, go you!
How are you feeling about it, really?
From my Mortgage Broker work, most aspiring home buyers are in one of three camps:
Super excited, determined, and ready to go – they can’t wait to jump in!
Anxious and overwhelmed – they’re nervous about what’s ahead, or
A bit of both - eager and daunted all in one.
With news about the state of the housing market and all the finance jargon that’s out there, it’s normal to feel like you’re on an emotional rollercoaster when it comes to buying a property. Emotions tend to go into overdrive when money, debt, and big price tags are involved.
Then throw in variables like inflation, shifting house prices, the changing lending landscape, differing bank policies, loan products and features, interest rates, deadlines, competition, advice from friends and family… things get super confusing and complicated, fast – which doesn’t make for a fun rollercoaster, at all!
One thing I’ve found that helps reduce home buying stress is knowing what’s next – what to expect, prepare, plan for, and avoid goes a long way in calming those nerves.
So, to save you hours of researching and information overload, I’ve put together this ultimate guide to the home loan process. It covers the 7 Stages of the home loan journey and will give you a roadmap to follow; helping to limit any nasty loop-the-loops or giant rollercoaster drops!
The 7 Stages of the Home Loan Process are...
Before you apply for any home loan, you want to be confident that you’ll meet the lenders criteria and be eligible for approval.
This is where a Mortgage Broker comes in handy – a great broker can save you from hours of internet browsing! Even better, they can identify your home loan eligibility in around 10 – 15 minutes.
Determining this involves them asking you a bunch of questions to get an idea of your income, expenses, savings, assets, liabilities, identification, and credit history. With this info on hand, they can tell you if you’re eligible for a home loan, what your borrowing power is, and what’s a realistic purchase price range – taking into consideration what savings you have available to put towards a deposit and purchase costs.
If you don’t currently qualify for a home loan, no sweat. Ask the broker what you need to do to put yourself in a position to qualify later, and they’ll tell you. When you are eligible, they can compare lenders and loan products for you and make a recommendation that's most suitable for your needs.
TIP 1: Avoid submitting multiple home loan applications to different lenders – you’ll start to rack up unnecessary hits on your credit file (and you don’t want that)! Always check your eligibility first (read How To Get and Protect Your Credit File for more info on why).
2. Loan Application Submission Once you meet lender eligibility criteria and have determined the best lender and loan product option for your needs, your loan application is submitted. In preparation for this stage, you’ll need to collect and provide all the relevant documents required to accompany your loan application.
Quick heads up - the list of supporting docs required for a home loan application is extensive and might leave you thinking “that’s a bit extra! Is ALL this necessary?”
That’s a normal thought, and unfortunately yes, that paperwork is required.
In the bank’s defence, you’re likely asking them to loan you a ton of money. So, when you look at it that way, it’s understandable that a lender wants to check all the documentation – to dot I’s and cross T’s. They need to make sure they’re lending money to folks who’ll repay it.
They’re also heavily regulated and need to ensure they’re being responsible in how much they lend out to you too (hence ALL the paperwork!) So to avoid unpleasant paperwork towers, you can start to compile your paperwork slowly now.
TIP 2: create a filing system and start collating important documents now so you're not scrambling to find it all later
3. Conditional Approval After your application is submitted, one of three things can happen...
your application is automatically conditionally approved after passing the lenders electronic credit scoring algorithm
your application is referred to a credit assessor for full assessment. If it passes this manual assessment stage, you’ll be issued with a Conditional Approval (A.K.A. a Pre-Approval). This means that your loan application has been approved, subject to satisfying conditions. These conditions often include finding a property that is a satisfactory security to the lender, a full valuation being completed to confirm its value, any updated paperwork being provided, credit assessor questions being answered, and a final assessment being undertaken. Depending on your lender, a pre-approval can be valid for anywhere from 3 to 6 months, which gives you time to get busy house hunting.
The worst-case scenario is your application is automatically declined. This can happen if your submission fails the electronic credit scoring algorithm, but hopefully can be avoided if going through a broker (as they’ll have insider knowledge on each lender and know what the system needs). And on the rare occasion this happens unexpectedly, a broker can advocate on your behalf with the lender directly, with the aim to overturn that electronic decision.
TIP 3: ensure you provide your broker (or bank, if you’re going direct), with ALL the info they request (including dates on when you started and finished jobs, how long you lived at previous addresses, and every asset and liability you have). This all helps with electronic credit scoring!
TIP 4: Once pre-approved, jump straight into house hunting and remember the expiry date of your pre-approval – if it expires, you’ll have to start the process again (and provide updated paperwork). So, don’t dawdle, get your house hunt on!
4. Valuation and Request for Formal Approval Once you’ve located the property you want to purchase and a contract of sale has been signed, a valuation will be ordered.
This is where an independent third-party Property Valuer attends the security you’re purchasing to ensure that it is valued at what you’re paying for it. The valuer provides a detailed valuation report to the lender and will also make comments about market conditions, the condition of the property, and point out any issues that may be applicable (such as flood zones or high voltage power lines that could impact future marketability of the property).
Subject to receipt of a satisfactory valuation, you can provide the lender with any other outstanding information from the conditional approval notice, and request they proceed to formally approve your loan application.
5. Unconditional Approval
Upon completing a final full assessment, if the lender is happy with your application, they will issue Unconditional Approval - also referred to as Formal Approval of your loan.
This is the official approval you want to get before the finance clause of your contract is due, and before you go unconditonal on your purchase.
If it’s looking like you won’t meet the finance deadline of your purchase contract, you’ll need to ask your solicitor to request a finance extension. Having a pre-approval in place helps to reduce the need for finance clause extensions – however if it is needed, asking for an extension is not uncommon. Speaking with your mortgage broker will give an idea of your lenders turnaround times so you can request a realistic extension to your finance clause (and avoid going back to ask for second extension later).
6. Loan Offer Documents
Within two days of the unconditional approval being confirmed, the lender will issue official loan offer documents. These documents contain all the detailed T&Cs of your loan. It’s a large group of documents that also contains your loan contract, and title documents that need to be witnessed by a Justice of the Peace or CommDec. It’s important that you read these documents in detail and fully understand everything before signing. You can also take these documents to your solicitor if you have any concerns and can ask your lender or mortgage broker for clarity too before you sign on the dotted lines (forward warning again, there will be a lot of documents to sign, but you’re on the home stretch!)
TIP 5: When posting your executed loan offer documents back to your lender, take note of the tracking number. You don’t want your documents getting lost and delaying your purchase! Express post is always an option if you’re on a tight schedule too.
With loan offer documents executed, witnessed and returned to the lender’s settlements department, the documents will be checked over with a fine-tooth comb to ensure all has been completed correctly. Then with the green tick to go ahead, a settlement date is booked in - this should match the settlement date that is noted on your purchase contract - and you’re on the final straight!
With all things running smoothly, at the end of settlement day, you’ll be collecting your keys and popping a bottle to celebrate buying your property (YAY!!!)
TIP 6: Be in communication with your solicitor at least one week prior to settlement to ensure everything is ready (or getting prepared). If you need to transfer settlement funds to a trust account, allow lots of time prior to settlement to do that (I’ve seen when this hasn’t been done and it isn’t pretty!)
So, there you have it - the home loan process wrapped up into seven key stages.
How’s the rollercoaster going now?
Hopefully this overview helps provide a full picture of what’s to come and calms any nerves.
The time it takes to move through each stage of the process will vary from person to person - depending on your unique financial situation, needs and home buying timeframe. But with a simple road map of what’s ahead, you’ll be able to navigate and move through each stage with ease, knowing when the end (and big home buying celebration) is in sight.
I hope with this guide, you can enjoy the ride!
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