Applying for a home loan becomes fairly simple when you break it down into a few steps:
Find a suitable home loan and lender.
Collect your identification and income documents.
Submit your application.
To increase your chances of success, you need to make sure you have all the paperwork, have your spending under control and consider getting pre-approval before you buy.
Finding a lender and getting pre-approval
You don't need to have a home loan organised before buying a property. You can't even complete a full application until you have a property address and a contract of sale (in other words, you've found a property, negotiated a price and agreed to buy it).
This is because your lender needs to conduct a valuation on the property you're buying before it approves the loan.
But a well-organised buyer starts comparing home loans and lenders in advance. This helps you understand your borrowing capacity and means less stress in rushing to find a loan before settlement day.
Some lenders offer pre-approval or conditional approval. Pre-approval means you submit a short, initial application and the lender offers a quick assessment of how much they might be willing to lend you. It's not binding, but it means you've started the home loan application process.
And if you're buying at auction, having pre-approval gives you an advantage over another bidder who doesn't have it.
Collect your home loan application documents
When applying for a home loan, you need to gather documents or other evidence of your income, debts and proof of identity.
Identity documents. You need documents to establish your identity, including a birth certificate, passport or driver's licence.
Proof of income. Your lender may be able to process this via your online banking platform, but if not, you will need to provide payslips as proof of your income. If you're self-employed, you won't have payslips and will need to provide a recent tax assessment or a business activity statement (BAS).
Debts, assets, liabilities. Bank and credit card statements can be used to establish your savings and debts. Be sure to include statements from every debt, including personal loans and existing mortgages.
Details about the property. You need the address of the property you're buying and a contract of sale signed by you and the seller. The lender may also require a certificate of currency, a document that proves you have an insurance policy covering the property.
The more complex your financial situation, the more supporting documents you will need. For example, if you're applying for a construction loan, you'll need a copy of the building contract. If you're a first home buyer with a guarantor, then the lender requires details about your guarantor's property.
Verification and credit check
Once the lender has your application, it will check the documents and verify your identity. The lender will also perform a credit check.
Finder survey: How do Australians prefer to apply for their home loan?
Response
In a branch
50.9%
Online
35.61%
Other
6.29%
Over the phone
4.77%
Via an app
2.43%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Completing the mortgage application
Every lender has its own application process. Most applications can be completed online. If you're using a mortgage broker, you can expect the broker to help you with the application.
Fill everything out and make sure to put in all the correct details. This makes sure the process moves as smoothly as possible.
As part of the application process, you will need to detail your monthly spending. Lenders break this down into different categories such as health, food and groceries, education, transportation and entertainment.
Your lender will examine your spending and compare it to the information contained in your income documents and bank statements. Getting your spending under control in the months before applying for a home loan puts you in a better position.
Finding a conveyancer
When you're in the process of buying a property, you need to engage a conveyancer. This is a type of legal specialist who handles property titles and all the legal aspects of a property purchase.
It's a good idea to engage a conveyancer when you're applying for a loan or even beforehand. A conveyancer should look over the contract of sale and the mortgage contract. They will also represent you at settlement.
When is the best time to apply for a home loan?
You can get pre-approval or begin the application process before sealing the deal on a property, but you can't actually get a home loan until you have signed the contract of sale.
It's entirely possible to find and apply for a home loan after you've found a property to buy. The biggest downside is you might have to rush to get everything organised before settlement. And if you can't find a lender because your borrowing capacity is too low or you don't meet the lender's criteria, the sale could fall through.
But the more organised you are in advance, the easier everything gets. Even if you don't get official pre-approval from a lender, you can start researching loans, find a conveyancer and gather your mortgage paperwork.
Tips to making a stronger loan application
Now that you have a better understanding of the application process, let's explore the steps you can take to make your application stronger.
Get your spending under control
Put yourself in a stronger position months before your home loan application begins by looking carefully at your spending and income.
Lenders will scrutinise your home loan application and are more likely to reject you if your spending is too high relative to your income. How high is too high? Each lender has its own eligibility criteria, but as a general rule, if your mortgage repayments would take up more than 30% of your monthly income, you're deemed to be a higher risk applicant.
A lender will likely ask you to assess your monthly spending, broken down into various categories (spending on utilities, food, entertainment, transportation). But don't be too rough in your estimate. Your lender will also look at your bank statements and other financial information. If you drastically underestimate your spending, it won't help you.
Trim your spending three to six months before applying for a home loan
A lender will look at your recent spending, usually over the last three to six months before you apply. To maximise your chances of approval, try to avoid making big, unnecessary purchases during those months.
If you have to make a large purchase, be sure to keep receipts so you can demonstrate that the purchase was a one-off. Spending $2,000 on a new television will blow out your spending on any given month, but you're unlikely to buy a flat-screen TV every month. Regular, large purchases are a much bigger red flag.
Anything you can do to trim down your spending can help your home loan application. Here are a few suggestions to get you started:
Review your recent spending and start tracking this via an app if you aren't already. Identify areas where you are spending too much and see if there are any obvious ways you can cut down.
Make a budget. Once you've reviewed your spending, you can start to set a realistic monthly budget. Having a budget written down should hopefully make it easier to follow through and actually spend less.
Look at those small, ongoing monthly costs such as streaming service subscriptions and memberships. You might be better off rotating between services rather than, say, paying for Stan and Netflix each month. A gym membership is probably a very sensible expense – if you use it. If not, consider cancelling.
Once you apply for a home loan or start the process with a broker, the next step will be a detailed check of your credit report. But there's nothing stopping you from checking it yourself before you apply. Doing so could help you identify any credit problems you may not know about. You might even find credit problems that are mistakes, and getting those rectified before applying will help your chances of approval.
The property you are looking to buy impacts your home loan application. This is because the property acts as security, meaning that the lender can recoup its loss if you can't repay your loan by taking and selling the property.
If the lender feels the property will be hard to sell or is worth much less than you're paying for it, your application may be rejected. If you are buying a small apartment in a postcode where there are many apartments being built, your lender may be hesitant to lend to you. Or it may agree to lend you a smaller amount relative to your deposit size (say, 70% of the property's value rather than 80%).
When applying for a home loan, it's good to check with a lender before submitting a full application. You can tell it the address of the property you're interested in or check if there are any restrictions on lending for apartments in the postcodes you're interested in.
Example: Manit has trouble getting a loan approved
Manit has just signed a contract to buy a two-bedroom apartment in an inner-city Melbourne suburb. Her credit score is excellent and she has used a borrowing capacity calculator that suggests she can comfortably afford the $500,000 property with her 20% deposit.
But when applying for a home loan, Manit's lender informs her there's a problem. Due to the high number of existing apartments in the postcode Manit is buying in, the lender feels lending to her is riskier. The lender is willing to provide her 70% of the property's value, meaning she needs a 30% deposit. This is more than Manit can afford. Luckily, Manit hasn't completed the application and is able to cancel it and find another lender.
This time, she calls the lender first and asks if there are any lending restrictions on apartments in her postcode. When she learns there are no issues, Manit completes an online application with the new lender.
More home loan application tips and help
If you think the whole process of finding and applying for a home loan is simply too much effort, or even if you're still a bit confused and need some help, talk to a mortgage broker. A mortgage broker is a qualified professional who can not only help you find a home loan but also help you through the entire home loan application process to the approval stage.
Here are a few common questions many borrowers have about the home loan process.
How long is the average home loan approval time?
Home loan processing and approval varies depending on the lender, the property and your particular circumstances. If you're purchasing a house (not a unit) with a 20% deposit and a stable income, your approval could take days. More complex applications, with smaller deposits or unusual properties (small units or rural properties, for example) can take longer.
Your lender may be currently very busy processing many applications, which can slow things down. Other lenders offer fast online approvals. This is a good option if your application is straightforward but you're in a rush.
A mortgage broker can also help you find a lender who can process your loan fast. Brokers have contacts at multiple lenders and are well-placed to find one that can handle your application faster.
Can I apply for a home loan completely online?
You can. There are many online lenders in the market who only offer online service and don't have physical branches. Keep in mind that some parts of the home buying process, such as dealing with a conveyancer, or getting your identity verified, may require a face-to-face meeting. Although these days some lenders and conveyancers may be able to facilitate every part of the process online.
What do I do if my application gets rejected?
This does happen. The trick is not to panic. Instead, you need to work out where you went wrong and take the necessary steps to have a solid application next time.
The home buying process step by step
Frequently asked questions
When you apply for a home loan your lender will look closely at your spending habits: that includes money spent on gambling. The impact on a mortgage application varies depending on your circumstances and how much you gamble.
Regular examples of gambling could hurt your borrowing power or result in a rejected application. This is because you could: End up missing repayments Have lower savings Have more debt Have increased ongoing expenses
When you apply for a home loan you'll need to provide information on your other debts and expenses, including if you have a car loan. This is so they can assess how much income you have left to service your repayments.
Having a car loan usually won't be enough to reject your home loan application, but it may reduce your borrowing power.
"Car loans will reduce affordability," Lynch says. "Each bank has different assessment criteria and policy when looking at an individual's ability to repay a loan. It's not uncommon to find some lenders will offer a more favourable servicing policy than others, and those who do have car loans and want to borrow more will find it useful to shop around.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 538 Finder guides across topics including:
When you apply for a home loan, a lender will take many serviceability factors into consideration when deciding whether or not to approve your application.
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