Purchasing your own home can be one of the most exciting yet stressful times in your life. Most people in Australia will use a mortgage to purchase their property rather than buy it outright. As the borrower, you're committing to a large, long-term loan. For this reasons, the home loan approval process can be complicated, unlike those for simpler loan like cash loans. Here we've de-mystified the process and outlined the key steps and issues.
1. Research and Chat with Broker
The process begins with a bit of research and/or the formal interview with your broker. This stage of the process is designed to help you look at your particular needs, get informed with what is available in terms of loan products and packages, and match your needs with the right product. At the end of this stage, you choose a lender and loan package.
2. Loan Application
Here you start putting together your application. Remember home loans are not intended to be fast loans and you should be patient and methodical in filling out the application forms and getting together any supporting documents. Fill out the application carefully to avoid any undue delays, make sure you have all the supporting documents. In most situations lenders can lodge the First Home Owner Grant application for you so be sure to check with your lender. Once you've double checked your application, you can send it off to your chosen lender for review.
3. Conditional Approval
The lender reviews your application. Usually you will be given a conditional approval which means the loan has been approved subject to further information and documents with respect to the property you are purchasing. The lender will let you know at this stage if the property needs to be valuable or if mortgage insurance is required.
4. Valuation and Insurance
The lender will arrange for a formal, independent valuation of the property. Valuations must be conducted by accredited valuers. The valuer will send a formal, comprehensive report to the lender who then uses this information to make an assessment of how much can be borrowed against the property for its purchase. If mortgage insurance is required, the lender will apply for lender's mortgage insurance. This usually only applies if you borrow more than 80 per cent of the value of the property and is charged as a one-off premium. It covers the lender in case of default on the mortgage.
5. Unconditional Approval
Once the lender has finalised the mortgage insurance and received the valuation reports, they will provide you with an unconditional approval by sending you a formal Letter of Offer. The letter of offer is basically a contract that outlines the terms and conditions of the loan, including the interest rates and repayment schedule.
6. Mortgage Documents
The lender will send you a copy of the mortgage documents for signing, usually within days of unconditional approval. The mortgage documents show that the loan is secured by the property and the lender has the right to the property if repayments are not made.
7. Loan Settlement
Once you have signed and returned the mortgage documents, your solicitor or conveyancer will liaise with the lender to finalise settlement. The settlement date is the date on which your loan is finalised and the property is formally transferred into your name. Congratulations, as your ownership begins on this day.