How to prepare for your home loan application
20 April, 2023
Applying for a home loan can be a daunting task, but with the right preparation and guidance, you can make the process much smoother. In this article, we will discuss how to prepare your home loan application and increase your chances of approval.
Get pre-approved
Getting pre-approved for a home loan can give you a competitive edge in the property market. Pre-approval means that a lender has assessed your financial situation and approved you for a loan up to a certain amount. Having pre-approval can give you the confidence to make an offer on a property and can speed up the settlement process.
To get pre-approved, you will need to provide the lender with your financial documents and undergo a credit check. Once you are pre-approved, the lender will issue you with a pre-approval letter, which you can use to show real estate agents and sellers that you are a serious buyer.
Calculate your borrowing power
The next step is to calculate your borrowing power. Borrowing power is the maximum amount of money a lender is willing to lend you based on your income, expenses, and other financial commitments. Knowing your borrowing power can help you determine the price range of properties you can afford and save you time in your property search.
You can use online calculators like the borrowing power calculator on the Moneysmart website to estimate your borrowing power. (Rule of thumb: do calculations adding a 3% buffer)
Gather your financial documents
To apply for a home loan, you will need to provide several financial documents. These documents include:
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Proof of income: Payslips, tax returns, or a letter from your employer
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Bank statements: Statements from your savings, transaction, and credit card accounts for the past six months
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List of assets: You will need to supply a list of your current assets, ie house, car, savings and super
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Proof of liabilities: Documents that show your outstanding debts, such as credit card balances, personal loans, or car loans
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Identification: A driver's licence or passport
Make sure you have these documents ready before applying for a home loan, as it can speed up the application process and increase your chances of approval.
Reduce your debts
Having too much debt can negatively impact your borrowing power and decrease your chances of getting approved for a home loan. Before applying for a loan, try to pay off as much debt as possible, particularly high-interest debt such as credit cards.
If you have multiple debts, consider consolidating them into one loan to reduce your interest rate and simplify your repayments. Our loans staff can help you find the best debt consolidation loan for your needs.
Save for a deposit
Saving for a deposit is essential when applying for a home loan. Generally, you will need to have a minimum deposit of 5% of the property's purchase price, but having a larger deposit can increase your chances of getting approved and reduce your mortgage repayments.
Try to save at least 20% of the property's purchase price to avoid paying lenders mortgage insurance (LMI), which is a one-time fee charged by lenders to protect themselves in case you default on the loan.
If you are a first home buyer, you may be eligible to take advantage of government incentives such as the First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme (FHLDS). These schemes can provide financial assistance and reduce the amount you need to save for a deposit.
Choose the right loan
Central West Credit Union have several types of home loans available, and choosing the right one can save you money in the long run.
Here at CWCU, we pride ourselves on being able to offer all your banking needs in an environment you can trust. Credit Unions are known for their ability to make the decisions you need, fast. You have better access to the decision-makers, making us more flexible and responsive to your needs than the larger banks.
Whether you're a first home buyer, or looking to upsize along with your family, or entering the investment property market our friendly team will work with you to find the loan that best supports your goals.
Our popular home loans include:
When choosing a loan, consider factors such as the interest rate, fees, repayment options, set-off account and flexibility. Our loans staff can help you compare different loan options and find the best one for your needs.
We can help
Preparing your home loan application requires careful planning and attention to detail. Our loans staff are here to help you through the process. Get in touch with us today and let’s work together to achieve your dream of owning a home.