5 key questions you need to answer during a Home Loan application
So you’re ready to apply for your very first home loan. Congratulations! Getting to this point may have been a difficult road, but the process of applying for a mortgage doesn’t have to be. A little bit of preparation goes a long way. Beyond Bank has prepared this list of key questions you’ll be asked during your application so you know what to expect when the time comes to sit down with your lender.
- What is your income?
Let’s start with an easy one. When you apply for a home loan, you’ll need to provide confirmation of your income. If you are employed on a permanent basis (full or part time), this is very straight forward and can usually be achieved by bringing with you at least 2 of your most recent payslips. If you are a contract worker or self employed, you will be required to provide a little more detail. Examples of what is needed could include the past 2 years tax returns and Income Tax Notice of Assessments, Profit and Loss Statements and Statements of Financial Position. This will depend on your specific employment situation, it will be beneficial to discuss with your lender what actually will be required prior so you are fully prepared at time of application. You should note, that in addition to your income, the lender will need to know details of your current and possibly previous (if you have not been in your current role for very long) employment.
- What are your assets?
Your existing assets will form an important part of a home loan application. They primarily indicate to a lender two things: firstly that you have shown the ability to grow your wealth and have not been frivolous with surplus income or spending; and if required you will have the ability to reduce or eliminate debt through sale of these assets.
As a first time borrower, most of your assets are likely to be your cash savings, held in a savings account or perhaps a term deposit – ready to be used as the deposit for the purchase of your new home. Providing bank statements of these savings is an easy way to show these assets to your lender. You may also have other investments, such as shares, bringing along details of these investments will also assist your application. Other things like vehicles, boats and caravans are also considered as assets for the purpose of loan applications and you should provide an appropriate value on these also.
- How much is your deposit?
Generally speaking you’ll want to have a deposit of 10 per cent of your new home’s value. Some types of loans will require a larger deposit of 15 or 20 per cent, while others might only require 5 per cent. Lower deposits often mean higher interest, and if you borrow more than 80 per cent of the property’s value you’ll most likely also be up for lenders’ mortgage insurance (LMI). So while you may pay less up front, it could be far more in the long run. As a rule, the larger the deposit the better position you’ll be in for approval.
Remember as well as the deposit towards the purchase, you will need to cover the costs of fees associated with the purchase. So whilst you may think you have saved enough or have a large deposit, remember part of this will need to contribute towards the purchase costs of the property. Your lender will be able to give you an indication of these costs, or you can utilise our online calculator to determine stamp duty.
Learn about saving for a House Deposit here.
- How much can you borrow?
Any existing loan or debt that you have will impact how much disposable income you will have to contribute to your new home loan repayments. Knowing the details of these debts, including amounts owing, regular repayments and frequency and total credit limits will need to be provided to the lender as part of the application process to be able to determine how much you can borrow. Prior to making an application it is a good idea to get an indication yourself on how much you may be able to borrow so that when you do apply, you will avoid any disappointment if you find out you cannot afford a particular property you had set your sights on. See our loan affordability calculators that can provide you with an indication on this.
- How will you use the property?
Will this property be for you to live in or are you going to use it as an investment and rent it out? The lender will need to know your intentions for several reasons. Firstly there are specific loan types and interest rates for investment properties. Secondly if you are not intending on living there and will be renting it out, the lender will have additional questions such as: how much rent will you expect to receive and will you be paying rent or board somewhere else? These are important factors that will influence other aspects of your application.
Of course, these are not the only questions you’ll be asked in the application process, but they are the primary concerning factors that determine your eligibility. For more information on how to apply for a home loan, get in contact with Beyond Bank or get the process started by applying online today.
Beyond Bank Australia, a trading name of Community CPS Australia Ltd, 100 Waymouth Street, Adelaide, SA 5000 (ABN 15 087 651 143, AFSL / Australian Credit Licence 237856)
This information has been provided without taking into account of your objectives, financial situation or needs. Before acquiring a Home Loan you should read the Terms and Conditions available at any branch or on our website or by calling 13 25 85 and consider the appropriateness of this product, having regard to your objectives, financial situation and needs.