Ideally you will arrange for a mortgage preapproval prior to finding the property you want. This is not the only way to do things, however it is probably the safest way.
1) Decide about how much money you will invest in the deposit for your property (and separately how much you will need for additional costs – see item 2)
Knowing these basics will ensure your preapproval request is relevant and will make things easier for you and the lender when trying to arrange a preapproval.
Your budget for the deposit and allowance for fees will help calculate what your likely loan to value ratio will be and this is critical as it will determine the types of loans and lenders you can access – different loan ratios also means different interest rate discounts!
2) Determine all the approximate costs of purchase that you need to pay for.
Stamp duty is the number 1 purchasing cost in Australia and ranges from 3% to 5% of the purchase price depending upon the State where the property is located and on the purchase price itself (refer to the Stamp Duty links in the Government links page). Please note if you are a non-resident buyer Australian states have introduced new foreign buyer surcharges so that your stamp duty cost is higher than the standard stamp duty and you will need to consult with your mortgage broker or state government stamp duty website to understand your actual cost.
Your legal fees to help deal with the contract of sale, the transfer process and the vendor, is your next biggest – and is typicaly from $800 to $2500 depending on the conveyancer/solicitor you use and their experience. (Refer to the Conveyancing resources on our Conveyancing page).
This doesn’t include any moving costs, government fees and bank fees. Ideally you would set aside total 5% of the purchase price to cover stamp duty and all these costs I have mentioned. In this way you will ensure you are covered.
Lenders Mortgage Insurance is a bank fee which only kicks in if you borrow more than 80% of the property purchase price and often can be added to the loan amount by the bank.
3) Consider and select the appropriate type of mortgage for you.
Choose the features you want in a loan.Discuss it with us. Which is best for me?
Familiarise and inform yourself about the features of various product types available and how they meet your requirements. Ask me questions. See the FAQ’s in this site. Contemplate what effect a fixed rate mortgage will have on your budget and what effect a variable rate one will have. Consider if you want to have both a variable rate and a fixed rate mortgage (split the loan – you can). Most importantly try and think about the changes to your family’s income and expenses you expect over the next 5 years… these changes will guide you and determine which structure is best.
Write down your questions.
Talking about this last point together could provide you with the greatest help you will need in working out which loan types are ultimately going to be best for you.
4) Collate the correct paperwork for a loan preapproval
Assemble all the necessary documents (payslips or for self employed financial statements and tax returns for the last 2 years, current loan monthly statements for existing commitments, and other evidence as requested) to ensure your loan application can be approved quickly. Your lender needs time to assess your documents and conduct credit checks to ensure your suitability. They are not flexible on the kinds of documents and the periods of time your docs need to cover! Near enough is never good enough for banks and the documents they want! Getting it right the first time will save you a lot of time.
Honesty really is the best policy: If you are not upfront about your existing financial commitments you will only make it harder for yourself and increase the likelihood of long term heartache. If you know and provide specific details about: Your monthly income excluding commissions and bonuses; the amounts you owe on all other loans and repayments per month; credit cards outstanding and limits; and any issues you know are in your credit history – then the information you get back from day one, will be accurate and appropriate and save you alot of time – which works in your favour if you happen to be negotiating for a purchase and need certainty about how much you can borrow.
5) Secure the property
- Obtain a copy of the vendor’s contract of sale (the bank will want a copy)
- Have your conveyancer review the contract and advise you of any issues to consider.
- have ready for the bank updated payslips and bank statements showing deposit and savings if more than one month has passed since the preapproval
- Pass on these documents to your mortgage broker for dealing with the bank and arranging full approval
- the bank will organise a property valuation, as they will only finance the agreed amount or loan percentage ratio calculated on the lower of the purchase price or property valuation result. Your broker will advise the outcome of the valuation and final loan full approval.
6) Upon Full Approval pay the deposit
Once you have been Fully Approved, this is the most appropriate and safest time to agree to go and pay the deposit on the property! Your finance is in place and a lender has agreed to finance your specific property purchase (rather than a general loan amount in principle which is in essence a preapproval with conditions). You can deal with the vendor and conveyancer with confidence your loan will settle and you will soon get your property.
7) Sign the Loan Offer and prepare for settlement.
At this point the lender prepares a loan offer and legal documents including the mortgage document. You will need to sign and return these documents promptly to enable the lender to setup your loan facility. The lender will need at least a week usually to prepare for settlement after you have sent the loan offer back signed.
If you are unsure about anything in these documents you should consider obtaining legal advice, to guide you and explain the meaning of the contract you are entering with the lender.
The actual settlement date and time is agreed between the vendor’s solicitor, your conveyancer and the bank’s solicitor. Eight times out of ten it will be the date agreed on your original contract of sale, however it can vary. Probably 9 times out of 10 settlement takes place on the date or within 2 or 3 days prior or after the date previously agreed for settlement in the contract.
The actual settlement process simply involves your conveyancer going to meet with the vendor’s solicitor and the bank’s solicitor to exchange cheques and paperwork for the mortgage. The conveyancer will usually advise you as soon as it is complete. At this point your mortgage is officially in place, and you are free to collect the keys from the agent!
For further information and planning your personal mortgage process, please contact email@example.com