Step-by-Step Guide to Your Home Loan Process
Purchasing a home loan can be overwhelming. Not only is it time-consuming from start to finish, but it can also get complicated due to the multiple areas that you need to consider.
Applicants who understand the steps involved in the process are able to increase their chances of gaining lender approval and purchasing their dream home. To help ensure you achieve your goals, we’ve curated a step-by-step guide to your home loan process.
There are three main phases in the home loan process:
- Pre-application – Preparation to maximise your chances of getting an approval
- Application – Assessment of the borrower’s eligibility for approval based on the information and supporting documentation provided
- Settlement/Post-Application – Transfer of funds once a settlement is reached on the application
Gain a home loan pre-approval
Potential borrowers can apply for a loan even before they have looked around for properties or are even still searching. A home loan pre-approval provides you with an indication on the amount a lender is willing to approve. This helps you set spending limits around the properties you search for as well as increases your negotiating power with home sellers.
A pre-approval is usually valid for 90 days and not legally binding to the applicant. During this time, a borrower can make an offer on a home within the bounds of their home loan pre-approval. Alternatively, they could apply for a home loan after they have made an offer on a property. However, sales contracts will need to include that the offer is subject to finance.
Regardless of whether you have found the house of your dreams or not, here are some things you need to be mindful of in the pre-application stage:
- Maintain a good credit rating
- Set a budget and save towards a deposit
- Avoid the accumulation of debts
- Research (or get help) on the different types of loan products available in the market
Search for the perfect home
Finding the perfect property requires a lot of research to make an informed decision. Ensure you have analysed the prices in the area and infrastructure plans etc. Registered valuers can also help with providing a comprehensive understanding of property values in the area to help you make the best possible decision.
Submit the home loan application
Individuals who have taken the necessary steps to prepare themselves in the pre-application stage, are in the best position to succeed in this phase. As such, applying for a home loan typically involves:
- The completion of the application form for the chosen lender. This information is required to be accurate and may be verified by the lender during assessment.
- Providing supporting documentation as requested by the lender. Documentation may involve, but not limited to, proof of income and employment, current assets and liabilities, proof of identity etc.
- Assessment of a borrower’s application against lending criteria. Once the lender has received all the information required for the application, assessment will centre around the applicant’s ability to repay the loan as well as the lender’s risk exposure. If an applicant is considered to be high risk, the lender might choose to impose specific terms and conditions that guarantee repayment.
Make an offer on your property of choice (and sign a Contract of Sale)
Once you make an offer on your property of choice, you will be asked to sign a Contract of Sale. This will include the selling price of the home as well as associated terms and conditions such as ‘subject to lender approval’, building inspection report and pest inspection. The period between the signing of the Contract of Sale to settlement is approximately six weeks (or longer due to the current backlog in loan approvals).
Pay a deposit
After the Contract of Sale has been signed, you will be required to pay a deposit (and/or a deposit bond until settlement) on the property that you intend to purchase. As you won’t have access to your home loan yet, the deposit will need to be financed by you.
Loan offer issued to the borrower
This phase is where the lender issues a loan offer to the borrower. It can take the form of 1) a pre-approval, if applied prior to searching for a property or 2) a final approval, if applied after a property to purchase was chosen.
Accept the offer and sign documentation
The approval offer will include documentation that the borrower will be required to sign. At this point, if necessary, you may also choose to receive independent legal advice to go over the associated terms and conditions prior to signing.
A contract to purchase a home will specify the date of settlement – which is the date the loan funds will be transferred to the seller and the buyer officially owns the home. This is also dependent on whether all the terms and conditions of the sale have been adhered to.
The settlement process will require the services of conveyancer solicitor to prepare and register the transfer of ownership of the property. They also ensure that the transfer of funds as well as all fees such as Stamp Duty, have been paid for legal ownership of the property.
Potential borrowers looking to purchase a new property can increase their chances of a settlement by following this ultimate guide. However, if you are interested in professional help to guide you through the home loan process, contact the experts at Provide Finance today!