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How to get a home loan

These days, getting a home loan doesn’t need to be an overwhelming experience. Yes, buying a home is the biggest financial decision most people make. And yes, it’s a long-term commitment of 25-30 years. But thanks to technology, the process has gotten a lot easier, and today you can get a home loan without leaving your couch.

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The 9 easy steps to getting a home loan

The home loan process can be pretty straightforward as long as you're aware of what's next.

  1. Save a deposit
  2. Compare lenders
  3. Consider your loan preferences
  4. Pre-approval
  5. Choose the right loan for you
  6. Make an offer on a home
  7. Pay the deposit and get formally approved
  8. Settle your home loan
  9. Get the keys to your new home

Find a better home loan today. Chat with one of our experts.

Step by step guide to getting a home loan

1. Save a deposit

The general rule of thumb is to save a deposit of 20% of the purchase price of your property. This will give you a loan to value ratio (LVR) of 80%. LVR is simply a term used to describe the ratio of the loan amount you borrowed to the price of the home you purchased and it has some important implications when it comes to getting a mortgage.

A low LVR is favourable as it signals to the lender that you are a less risky borrower and having a deposit more than 20% means you won’t risk having to pay Lender’s Mortgage Insurance (LMI). Read more about LMI here.

However, in today’s property market, some Australian first home buyers enter the market with just a 5% deposit. If you’re low on a deposit, read our guide to no deposit home loans here.

  • Don't forget: Your deposit isn’t only money you’ll need to save. To complete you’ll the purchase, you’ll need to consider the extra costs of buying a home.

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2. Compare lenders

Don’t put all your eggs in one basket. If you go directly to a bank you will only see a limited number of options. Save your yourself a lot of time (and probably money) by going online and using an online home loan platform, there you can compare loans from all the major banks and lenders in one place. You'll see personalised home loan results for your specific requirements in seconds.

First, we’ll ask a few questions about your financial situation in order to calculate your borrowing power. This is calculated through examining your income and expenses, assets and liabilities and the deposit you can afford to put down.

When getting a home loan you can expect to answer questions about:

  • Your income and employment history
  • Assets and liabilities e.g. cars, stocks, and any existing loans
  • Your monthly expenses i.e. groceries, utilities, childcare etc.
  • How you’d like to repay your loan
  • Any features you want with your loan i.e. an offset account, redraw facility, or the flexibility to make extra repayments
  • Your requirements and objectives for your loan

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3. Consider your loan preferences

Next up it’s time to think about your loan preferences. This is how we find a loan best suited to your lifestyle. How would you like to pay off your loan and how would you like to be charged interest?

Fixed interest rate vs variable interest rate

You can choose to pay the interest on your loan in a number of ways. Ask yourself whether you require the stability of e.g. a fixed rate, over the flexibility of e.g. a variable rate.

  • Variable rate loan - These loans have variable interest rates that rise and fall with market rates and can subsequently mean more uncertain repayment amounts. On the upside, these loans generally give you the option to make extra repayments.

  • Fixed rate loan - Loans with fixed interest rates have a set interest rate, generally for 1-5 years and offer more certainty but the downside is you won’t be able to benefit from falls in interest rate and they can be costly if you want to refinance during the fixed rate period.

  • Split loan - You may also want to consider a split loan which is essentially a combination of a variable rate loan and a fixed rate loan. One portion of the loan is paid via a fixed interest rate and the rest will be paid under a variable one.

Choosing to make principal and interest repayments vs interest only repayments

How you repay your loan can have a big impact on your finances. You’ll be asked if you want to make principal and interest, or interest only repayments. This decision can impact how much total interest you pay over the life of your loan and the initial interest rate you are offered by lenders.

  • Loans with interest-only repayments- ‘Interest only’ repayments mean you will only pay off the interest charged on your loan rather than the loan itself for a set period of time (typically 1-5 years). It’s important to remember that you are not repaying the loan itself in this period and will pay more interest in total over the life of the loan.

  • Loans with principal and interest repayments - Principal and interest repayments consist of both the amount you initially borrowed i.e. the ‘principal’ as well as the interest or cost of borrowing. This option means you pay less interest overall and will own your home outright sooner.

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Choosing the right home loan features

Home loans can come with a lot of features or none at all. The features you choose will depend on your individual needs and preferences. You should be aware that some features may incur an annual fee. Here are some features you might want to think about:

  • Offset accounts - An offset account is a savings or transaction account linked to your home loan and is designed to reduce the amount of ‘principal’ upon which your interest payable is calculated, thereby reducing the interest you pay. These accounts give you unlimited access to your money but generally do not give you the option to make additional repayments.

  • Redraw facilities and making extra repayments - A redraw facility allows you to make extra repayments and then access these repayments at a later time if you need the funds. It’s worth noting that fixed rate loans typically do not have extra repayment functionality.

  • Home loan portability - If you think you might move home in the next few years, a home loan with this feature will allow you avoid break cost fees if you wish to keep your loan when moving to a new property.

  • Repayment holidays - A small break period from making repayments when your cash is needed elsewhere e.g. going on parental leave.

  • Repayment frequency and schedule - More frequent repayments (i.e. fortnightly rather than monthly) can mean a saving in interest in the long run since lenders calculate interest daily. Remember to choose a repayment schedule that suits your own lifestyle and income.

  • Online access - The ability to access your home loan account to check your balance or make any changes can be a useful feature.

Got a question? Our Home Loan Specialists are here to help. Schedule a time to chat with an expert.

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4. Home loan pre-approval

What is pre-approval? Pre-approval is simply an indication that a lender is likely to approve you for a specific home loan and most buyers get pre-approved before they make an offer on a property.

The main benefit to getting pre-approved is that you’ll know what you can, and can’t afford to buy. This is particularly helpful when it comes to bidding at auctions.

The benefits to pre-approval include:

  • Knowing what you can and cannot afford to bid on at auction
  • There is no cost to getting pre-approved
  • Pre-approval is typically valid for 3-6 months (can be extended)
  • Sellers can potentially favour pre-approved buyers because it means they can settle faster

Hate commitment? Pre-approval is by no means a binding contract and if you haven’t found the property you’d like to purchase once your pre-approval expires, you can easily extend it for free.

Documents you'll need to provide to get a home loan:

  1. Proof of identification - Passport, birth certificate, driver’s licence etc.
  2. Records of your assets - E.g. bank accounts, property investment, share market investments or any other investments.
  3. Records of your liabilities - Any existing loans e.g, car loan, personal loan, credit cards.
  4. Employment and income history - Payslips and bank statements detailing income should be provided.
  5. Tax returns - If you are self-employed, you’ll need both your individual tax return as well as a business tax return, along with your business’ balance sheet and income statement.
  6. Record of expenses - Bank statements from the last 6 months
  7. Recent PAYG statement - Otherwise known as a group certificate.

(Pssst!! You can upload and verify these securely online with Lendi)

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5. Choose the right loan for you

You'll see a shortlist of the best loan options available to you based on your specific needs and circumstances.

It's time to review your loan recommendations and choose the loan which best fits you and your individual needs. Remember that our Home Loan Specialists are always here to help if you need a hand.

Once you've chosen your loan, your application will be submitted to the lender who will assess the documentation and if all looks well, give you Approval in Principal (pre-approval). Remember, assessment wait times for pre-approval will vary depending on the lender. If you're in a hurry, let one of our experts know and they can advise you of lenders with the shorter wait times.

6. You’re ready to make an offer on a home

Once you’re pre-approved, you can confidently make an offer on your dream home knowing what you can afford.

If your offer is accepted you’ll have a 5-day cooling-off period (there is no cooling-off period if you purchase at auction).

During this time your Home Loan Specialist will help organise a valuation and building inspection. Don’t forget to provide your solicitor or conveyancer with the contract of sale.

7. Pay the deposit and get formally approved

Once your offer is accepted you will exchange contracts and pay the deposit. Once your lender ensures all documents are in order, your loan documents will be generated for you to sign and return. Your legal representative will review your home loan contract so can get formally approved.

8. We'll settle your home loan

On settlement day, the lender will pay the seller of your property on your behalf and you will need to pay any final costs e.g. stamp duty. Your first loan repayment is typically due 1 month from the settlement date.

What do you need to do? Ask your solicitor or conveyancer (also responsible for transferral of property title) where your funds need to be in order to finalise the loan.

9. Get the keys to your new home!

If you’ve reached this last step, your conveyancer will contact the real estate agent and instruct them to hand over the keys to you, the new owner.

So there you go! The home loan application process can be straightforward with the help of technology and advice from experts.

Got a home loan question?

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist.

Calculate your loan repayments

$
%
years

Got a question?

Get free expert home loan advice. Schedule a callback from one of our Home Loan Specialists.

Tags: application form, deposit, settlement date, offset account, principal and interest loan, new purchase, first home buyer

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. Lendi's board is majority independent and non-executive.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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