When you are buying your first home, the loan process may seem somewhat daunting (to say the least!). With so many unfamiliar obstacles ahead, it may feel like you're walking blind; just lucking your way through each barrier, not knowing how close you are to owning your own home. Luckily, mortgage brokers have walked the path many times before; they can guide you through the complicated maze that is the lending process, one step at a time.
Before you start your home loan journey, be sure to mull over our visual guide to the loan process. You'll realise there's a lot more to home buying than just the drop of a hammer and the signing of a cheque!
Before you buy, you need to be sure that the bank is going to grant you a loan. If you place a winning bid at auction, only for lenders to turn around and say you do not meet their lending criteria, then you could end up in a serious financial predicament. In the worst case scenario, your entire deposit could be lost. Thus, you can see why pre-approval is vitally important.
The main benefits of getting pre-approved are:
1. You know what you can afford, and can adjust your house hunt accordingly.
2. Real estate agents will be more inclined to assist in your house hunt, as they know you are serious.
3. You can identify any potential hurdles you might face in getting a mortgage (and find ways to overcome them).
Your mortgage broker will provide some recommendations on which loan product would best suit you. They will also give you a checklist of the necessary documents (pay slips, bank statements, identification etc.), before compiling a case to present to the lender. After submission, pre-approval generally takes about 3-5 days to complete.
Find your dream home.
Once your pre-approval is sorted, you'll have 90 days of validity to search for your forever home (or your 'next 5 years' home - whatever suits)! You can now bid at auction with confidence, but never forgetting the number one rule; Know. Your. Limit. Don't get sucked into the emotion and bid above your pre-approved amount or, again, deep financial trouble will likely ensure.
If you are placing an offer on a house outside of auction, always include the clause "subject to finance". Regardless of whether you have been granted pre-approval or not, these 3 little words will act as an extra security blanket, and give you peace of mind if your financial situation happens to suddenly change.
Conditional approval and Valuation.
Once you've received the contract of sale, your broker will put together a complete application on your behalf. This process is quite similar to pre-approval, but this time, the lender would look over the contract of sale and arrange a valuation of the property. This is to ensure the loan amount is not greater than the property value. If LMI is applicable on your loan, then the lender would also be seeking approval from their LMI insurer at this point, to ensure they are covered if you were to default on your loan and force a sale of your property at market value (which could result in a loss).
This part of the loan process generally takes between 6-8 days.
Unconditional approval and
If your finances are all up to scratch, and the valuation and LMI requirements come back A-OK, then there is no reason you should be met with anything but the two welcome words; Unconditional Approval. The bank have now officially granted you a home loan!
Before you start celebrating, you need to get through the settlement phase first. There are protocols and regulations that must first be completed before the property can legally change ownership. These legalities can become quite complex, hence why it is standard to engage the services of a conveyancer or solicitor to assist you - your mortgage broker should be able to refer you to an expert.
Settlement periods are set on a case by case basis, but generally range between 30 days and 90 days. They are negotiated at the time of purchase. Longer settlements can be great for giving you more time to save and build up a buffer for all the unforeseen expenses of moving, while shorter periods can be negotiated if you are eager to move in quickly.
During settlement, your solicitor will ask you to sign a few documents, such as the transfer of land, stamp duty application, and authority to proceed, etc. When the solicitors from both parties have taken care of all the nitty gritty details, settlement day will roll around, and finally......
You've done it! You've reached the end of the twisting, turning maze that is the lending process, and your beautiful new home is on the other side!
While it may seem like a difficult journey, having the right people on your side can make a world the difference. Your mortgage broker will do all the negotiating with the banks so that you don't have to, leaving you time to day dream about your wall colours, your furnishings, and your swanky new kitchen table - all the little details that make a house a home.
Disclaimer: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.