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Applying
For A Loan
Applying
for a loan can be quite daunting as it may involve a personal
interview and many detailed questions about your financial status.
An
increasing number of lenders operate internet sites where you
can apply for a loan without having to go into an office. You
will be asked the same questions but you won't have to do the
terrifying trip to the bank manager!
You
can apply for a loan either before you start looking or when you
have found a suitable home. It is probably better to apply before
you buy so that you:
| know where your
price limit is |
don't waste time
when you find your ideal home (and perhaps lose
the property) |
| are prepared
to bid at auction |
You
can apply for a loan when you have found the property but you
will have many other things to think about such as solicitors
or conveyancers, real estate agents, property inspections and
negotiations.
The
important points to consider when applying for a loan are:
- Deposit,
- Interview,
and
- Approval
Time.
Deposit
It
goes without saying that having a bigger deposit puts you in a
better negotiating position with a lending institution. Most lenders
require that five per cent of the purchase price must be your
own savings to demonstrate a history of regular saving but may
be more likely to lend to borrowers who have at least 10 per cent.
The
amount you need to have should cover the deposit and other expenses
associated with purchasing a property such as stamp duty, legal
costs, loan applications, etc. As a general rule, allow five per
cent of the property price to cover the costs in applying for
the loan and in purchasing the property. Click here for more information
about these ‘hidden’ costs.
| If
possible, try to pay all the upfront costs when
you sign the mortgage documents rather than add
them onto the loan amount. Adding the costs will
increase the amount borrowed and extend the term
and cost of the loan. |
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The
more deposit, or equity, you have the less you will need to borrow,
therefore, you will pay less interest over the period of the loan
and your mortgage repayments will be smaller. On the other hand,
if you have more equity you may be allowed to borrow more and
so purchase a better property.
Some
lenders will approve loans on as little as five per cent equity
(subject to certain conditions).
Interview
As
part of the approval process, the lender will ask you some detailed
questions about your financial circumstances. Some of the information
is required for approving the loan and some is required for opening
the bank accounts that may run in parallel with certain types
of loan. Being prepared at the initial interview can reduce the
time taken to process your application.
These
are some of the questions you will be asked and what you should
bring with you to the interview.
Who you are and
where you live - driver’s licence,
passport,
notices showing address as current address, |
Your employment
history - name and address of present
employer
and, if less than two years, previous employer, commencement
date, |
How much you
want to borrow - information about
the property
(from the real estate agent) if you’ve already seen the home
you like, |
| How much deposit
you have - bank book or statements,
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| Your savings
history - bank book or statements,
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Your total income
(including your spouse or partner if you are
buying the home together) - tax
return from previous year; recent
payslips or equivalent, |
Details of savings
and investments - balance of cheque
and
savings accounts, value of shares, bonds, etc. |
Information about
other assets you own - estimated
value of cars,
home computer, jewellery, etc. |
Details of hire
purchase or lease payments - balance,
repayments
and length of loan, e.g. car repayments, |
Details about
credit cards - statements showing
limits and amount
owing, |
Details of insurance
policies - policies for home &
contents, life
insurance. |
If
you are refinancing your current loan, you must also bring a copy
of the Certificate of Title for the property, repayment statements,
rates notices and statements of income from rental (if applicable).
| If
you are a first home buyer you should also check
if you are eligible for government assistance.
This assistance is means tested and conditions
and benefits vary from state to state. Details
can be obtained from the Office of State Revenue
or your solicitor. |
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Approval Time
The
approval time depends on the many factors such as:
| the standard
procedures of the lending institution |
| the purpose of
your application |
| its complexity
|
| how much you
want to borrow |
| your income |
| other debts you
may have. |
Most
real estate agents allow a working week for the purchaser to obtain
financial approval. Some lenders can give 'on the spot' approval,
some may take one or two days, others may take a week. Be sure
to mention whether the need for approval is urgent.
If
you meet your lender's requirements they can often provide you
with a letter of approval which states your borrowing limit. Formal
approval is made when you have chosen the property, provided all
the details to the lender, and they are happy with the valuation
of the property.
A
loan approval is generally valid for three months although extensions
are possible.
If
you miss out on your ideal property the loan application may have
to be reassessed by your lender if you apply for a different property.
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