Lending Solutions

Knowing your borrowing potential for a home loan will depend on the following:

• Your disposable income. This is the money that is left from your income after you pay for your monthly living expenses (living expenses include items like rent, transport, groceries, social, insurance premiums etc).
• Your current loan repayments. These are your current liabilities like existing mortgage, car and credit card repayments.
• Your proposed loan Repayment. After deductions have been made for income, living expenses and your current liabilities your remaining income will need to be able to comfortably cover your new loan.
• The size of your Deposit and/or equity. Lenders will require a deposit to be contributed towards your new purchase or for there to be sufficient equity in your property if you would like to refinance. Without these a lender can limit the loan they are prepared to offer.
• Your Current Credit Worthiness. Lenders will also look at how you have been paying your current liabilities and living expenses. Your proven ability to regularly pay your existing mortgage, rent and car repayments will have a positive impact on how much you can borrow.

A loan repayment calculator is a great tool to help you visualise how the repayments will look. It gives you an overview of your financial situation based on your requested loan, including the amount you have saved as a deposit for the purchase of the property. It will tell you how much you need to pay back to the lender for the loan amount that you want to borrow, usually calculated on a monthly basis. The calculator will also inform you how much of your monthly payment will go to the interest and principal amount of the loan. All helping you make smart decisions about the home loan that you select.

Calculate your repayments

Applying for a home loan will depend on the actual lender. It can be a long and complex process depending on your credit and financial situation.

The following steps outline the usual process:

1. Set an appointment with the mortgage lender
2. Fill out forms and receive the list of documents needed
3. Choose the type of home loan you will borrow (they differ in the type of interest, terms, etc)
4. An assessment is made by the lender if the loan is suitable for you
5. Acquire conditional approval – this will lead to the property valuation and credit check
6. Full approval of the home loan
7. Submission of Loan Agreement documents
8. Settlement of the loan

If things go well, the mortgage loan application process usually takes 4 to 8 weeks to complete. It will take longer if your documents are incomplete.

• Personal information, including current and past address, etc.
• Valid IDs (passport, government IDs, employment IDs)
• Income and other sources (salary records)
• Letter of employment (from employer)
• Tax returns or notice of assessment (for self-employed, you need 2 or 3 years’ worth of tax returns)
• Employment history
• List of current assets (e.g. other properties, cars, etc)
• Recent credit (credit documents should indicate credit limit) and bank statements (six months’ worth to show saving pattern)
• Sales contract

Ideally, you should be able to give a 5-10% deposit on the purchase price of the house. If you intend on buying a house that costs $500,000, you should save at least $25,000 for the deposit and then another 5% to allow for costs. The bigger the deposit, the less you have to borrow on the mortgage.

If you cannot provide a deposit of 20% of the home’s value, you will most likely need to pay for lender’s mortgage insurance. There are however some strategies available where you can use a guarantee from your family to assist with the purchase.

Lenders Mortgage Insurance is a type of insurance that lenders take to protect them from losses in the event that you default on your loan. Lenders will arrange the LMI on your behalf but you will need to pay premium at settlement. The premium is paid once per loan.

Before you start your search, it is good idea to secure a pre-approval for a home loan. That way, the process of obtaining the loan will be faster after you find the right property to buy.

A pre-approval is a great way to determine the amount you can be approved for. It is usually valid for three (3) months – which is enough time for you to find a property to buy. Once you have found a property, you can go back to the same lender to process the actual home loan based on your pre-approval.

Getting a pre-approval is also proof to the seller that you are serious about buying the property. Sometimes, this can work in your favour when there are other buyers interested in purchasing the same property.