Getting inside the Home Loan Application Process
1. Fulfilling the lender’s criteria – Just as you would be skeptical about lending money to total strangers and ask for their bio data, past credit history and debts, income statement and any other financial statements, home lenders work the same way for you. Lenders are becoming very cautious due to alarming rate of home loan defaulters across the world such as UK, USA, Europe and Aussies being no exception. Your lender (bank, a home loan company, a lending firm) would be looking at the following, to judge your suitability of getting a loan:
Personal details (income status, employment history, current & permanent address)
Credit check for your financial liabilities (looking up for your previous debts, and credit history)
Your default rate on the previous credits (if any)
Your monthly expenses
Your wealth and assets (properties, cars, investments, bank accounts, saving deposits)
A good place to start in understanding your credit score is to visit Credit Report page at Moneysmart.gov.au (the official consumer information website of Australian Securities and Investments Commission) and see how the credit score is calculated.
Once you submit the required documents, the lender would then verify them through its own channels, to see the accuracy, and review all the details for suitability of the home loan.
2. Loan application – Due to technological advancements, there is a myriad of ways in which the buyer can apply. Websites of almost all reputable and financially regulated banks/lenders help the buyer in applying for the loan using any method including:
Online (downloading the form, printing it, attaching documents with it and submitting to the lender)
Phone (calling the experts and getting the information before physical meeting)
Fax (Downloading the form, filling it, and faxing it to the lender’s fax number)
3. Loan approval/rejection – Based upon the documents provided, your loan could either be approved or rejected with reasons mentioned. Once the lender is sure about the verified details of your documents to judge you as a genuine borrower, the loan application gets approved. Once your application is approved, the mortgage broker would inform you with the lender’s decision to process all the documents and send over to the lender’s office.
Once the loan application gets approved, you have to satisfy the lender in an unlikely event of you getting defaulted, injured, or unemployed. Many lenders used to approve loans simply based upon past performance of the borrower, but that has now become an outdated criteria. Lenders now look for any events that could make the loan default. Also, many banks cannot grant a loan of more than 80% of the purchase price. This is known as Loan to Value Ratio. For a property worth $500,000, you can get a maximum loan of $400,000 or in some cases up to $450,000 if your financial statements are sound enough to be valued. For more read How Banks Assess Home Loans.
4. Property assessment – Once all paper work is completed, you have provided the lender with substantial information and your loan application gets approved, qualified real estate appraisers and property inspectors hired by the lender would pay a visit to the property and assess its suitability for lending purposes.
5. Issuance of Letter of Offer – Congratulations! With all of the efforts you have done till now up to the highest level of honesty and integrity, your loan application would get approved and you would be offered presented a formal Letter of Offer that states all terms and conditions of the home loan. DO NOT rush in signing this document as this is the biggest commitment of your life. Meticulously review the details and read in between the lines, no matter how long the document is. Once signed, it officially means that you have agreed to all of the terms and conditions in the document and that you would follow them with the highest level of honesty & integrity.