Buying your first home can be quite stressful and knowing where to start can be the hardest part of all, here’s a brief guide to ensure you’re ready.
Putting together the paperwork needed for home loan approval is a task many prospective home buyers dread. There is no denying that applying for a home loan is a complex process and the required documentation that lenders require can be significant. So it can be reassuring when your lending specialist explains the process in simple terms and advises you that they know what lenders are looking for when it comes to assessing an application.
Submitting an incomplete loan application directly to lender can result in the loan application going back and forth without result or even derail the application altogether.
Lenders assess your application by evaluating the risk involved with repaying the loan. While requirements vary from lender to lender, here is some of the key criteria commonly used to assess the risk of a client. This checklist is only a guide. Your mortgage specialist will advise you if your personal circumstances mean that other documents are required.
Lenders want to know how much you earn as well as how stable these earnings are. They are interested in whether your employment is continuous and consistent. Bank statements, payslips, group certificates or tax returns are among the documents required to give evidence of income.
- PAYE /wage earner
At least two consecutive recent payslips which detail your income and your current / year-to-date gross and net incomes. Details of your employer. And possibly, a Group Certificate, Tax Assessment or similar.
If you are self-employed, the last two years’ worth of tax returns is required, plus other full financial statements for the past two years.
Your Financial Position
To determine your financial situation, lenders want to see proof of your assets and liabilities, including savings, shareholdings and motor vehicles. Lenders often differ in their requirements, but as your lending specialist, we can advise you of the specific paperwork required. Some lenders, for example, ask for documentation relating to insurances and personal cover to see whether your assets are protected. The following list provides a summary of what you will need to provide:-
- Superannuation details and balances/s
- Asset position – list all details of what you own, such as property, vehicles, valuables and home contents
- Self-employed / Trusts – you will need your accountant’s details and the last two year’s financial statements.
- List all debt and liabilities:-
- Details of loan balances credit card limits and balances, leases, store cards and any other persona debt.
If you are refinancing a loan, lenders will also request copies of credit card and personal loan statements to see that you’ve been able to make any previous credit repayments and bill payments on time. Keep in mind that it’s not just your credit card, home loan or personal loan repayments they’ll look at, but also any mobile phone and utility bills.
It’s not just the dollar figure that lenders look at, but also whether you are capable of saving over the long term. A bank account statement showing regular deposits is an example of documentation required. Applications can be rejected if a savings history is deemed not to be genuine, for example savings which were a gift.
Tips on getting financially fit
- Debt reduction – Reduce your outstanding debts and improve your assets:liability ratio. This includes credit cards, personal loans and even store cards.
- Know your credit score – Most of the major banks and other lenders use credit scores to assess loan applications. So it’s a good idea to find out your credit score prior to applying for a home loan to ensure there will be no surprises in your application. Use this opportunity to rectify any errors or raise concerns about any of the credit entries. You can read more about how to assess your credit score at Here.
- Payment history – a demonstrated history of on-time payments is also a great idea as it will reassure the lender of your ability to re-pay your home loan. Supply statements such as credit card payments, car loan repayments and so on to assist.
- Build up your savings account – As many lenders require a record of savings history as part of the criteria for applying for a home loan. Consider opening a high interest savings account or term deposit to assist in growing your deposit faster.