Loan Application FAQs
Traditionally, borrowers would attend a bank branch to obtain a loan. The branch staff are employed by the bank so will offer you a range of bank-branded products.
These days, mortgage brokers who are typically self employed service 69.5% of the market (Broker News 30/09/22). Mortgage brokers search for the most appropriate mortgage for your situation.
As they are self employed, mortgage brokers provide more choice, are more motivated to find you a competitive product & studies have shown provide a better level of service.
Australian Securities and Investments Commission (ASIC) requires brokers to have a Certificate IV in Finance and Mortgage Broking to meet the minimum requirements to operate legally in Australia.
A broker will either operate under their own Australian Credit Licence (ACL) or as Credit Representative of another entity’s ACL. It’s worth checking that your broker has these qualifications. Check the ASIC website here.
Overall, Loan Lounge holds a combined experience of over 20 years of banking experience.
We are remunerated by the lender for introducing you to them. We introduce you based on the information you have provided to us. The business is paid via upfront and trail commissions. However, these commissions are not payable by you. Think of it as a distribution channel of the lender.
The most important part of working with a broker is to understand your personal situation.
We do this by completing a fact find which ask you questions about your current situation covering your income, expenses, assets and liabilities.
We then ask for a copy of documents to verify the fact find and put together a proposal.
Once the application is processed, it may take anywhere from 1-5 business days to obtain a conditional approval (preapproval) provided everything is provided and the lender does not require any clarification. From the start of the process to the end (settlement date).
Typically, the timeframes are:
1. Refinance – 2-3 weeks
2. Purchase – 6-7 weeks
It’s a good idea to have the following documents ready to share with your broker:
- ID documents
- Income documents
- Asset & Liabilities information
- Living expenses information
- 3 years of employment & addresses information
With this information handy, you’ll be ready to start the home loan process and well on your way to getting your property.
Click this Documents Required to help you with what is required.
The documents required can be broken up to the following parts:
1. ID documents e.g. Drivers Licence and Passport
2. Income documents e.g. Most recent payslip, Most recent income statement (from MyGov) or the most 2 year financial statements and tax returns if you are self employed
3. Asset documents – Most recent bank statement to evidence savings, council rates
4. Liability documents – 6 months of home or business loan statements, most recent credit card / car loan / personal loan statements, HELP debt, buy now / pay later
Please click Documents Required to see what is required for the document collection stage.
A rate lock is an optional feature that may be available to applicants of fixed-rate home loans. It enables you to secure (lock) a rate, meaning even if interest rates rise during the process of a home loan application, your rates will stay at the interest rate that was locked in.
The reason you would rate lock is because a home loan application process takes time – for Purchases, it may potentially take months from pre-approval till a property is found, contracts exchanged and settled (42 days between), or for Refinances, 2-6 weeks from application to settlement. Hence, interest rates can move during the process, and banks usually set the interest rate at the settlement date.
Every lender has different rules and processes so it’s best to speak to your broker to determine the most appropriate solution.
It is good practice to review your loan on an annual basis or when your circumstances change.
Some triggers that make it a good idea to relook at your loan are:
1. Uncertainty – concerned about the future and would like to revisit your loan
2. Time – a year has passed or more. We can revisit the loan to make sure its still the right product for you
3. Value of home – if the value of the home has increased, the LVR (loan to value ratio) has reduced which means you can get a better rate
4. Wealth creation – looking to build your wealth using equity in your property
5. Personal expenses – car, holiday, wedding, etc
After you find a property, you will need to engage with a conveyancer. You can choose your own conveyancer or we can recommend someone to you.
The conveyancer will review the contract. We suggest taking a scan of the front page of the contract and providing it to us.
We will then organise a valuation, request any outstanding documents (e.g. income and/or asset documents), update any loan requirements and work on obtaining a formal approval. Once you receive a formal approval then you have the certainty of the lender offering you the finance.
If the loan is variable, you can pay as much or as little extra as you want into the loan – this means you can even decide to pay it all down the next day without any penalties for a majority of lenders.
There are 2 options to paying down the loan:
- Pay straight into the loan – if you pay above the minimum repayment – it will go into a redraw facility meaning you can take it out when you need it (e.g. if you have made an additional payment of $50k into a $600K loan, the balance of the loan will be $550K with available funds of $50K)
2. Leave the funds in the offset account – the offset account is like an everyday account and the interest will be the difference between your loan balance and what is held in offset (e.g. loan balance of $600K but $50K in offset means you’ll pay interest on $550K. As the funds are yours and sitting in an offset account, you can access it at anytime)
Please note in both options – the scheduled repayments still stay the same because the calculations are based on a 30 year loan term and your loan limit. The difference is the interest charged for the month reduces and you end up paying off your loan in a shorter term.
If you wish to reduce the scheduled repayments then you can pay extra into the loan and contact the lender to remove any redraw. This will recalculate your loan repayments over the remaining term.
Loan Approved FAQs
Conditional approval is the stage prior to obtaining an unconditional or formal approval.
This means the lender requires further information before they are comfortable with offering you a loan.
Typically when its a preapproval to buy a property, the condition is that you find a property, provide an executed contract of sale then a valuation is ordered through the broker to make sure that the property is acceptable.
To be sure whether the property that you buy is acceptable, we suggest making a withholding deposit of 0.25% and asking for a 10 day cooling off period. This will give us sufficient time to work on converting your conditional approval to a formal approval.
A preapproval usually last 3 months. Please note that a preapproval is another name for a conditional approval where there are still conditions attached.
The main risk with a preapproval:
– Changes in interest rates which will alter your borrowing amount
– Changes to your income which will alter your borrowing amount
– Changes to bank policy
– Outdated documents which means we will need to obtain new documents from you and update the lender
Great News! this is the best part. The hard work has been done.
From here, the loan contracts will either be emailed, posted or sent via docusign for you to review and sign.
Once signed, the loan contracts are returned, verified and then the file is ready for settlement. This is the stage whereby your conveyancer will liaise with the lender’s solicitors to settle the property.
A reminder to purchase your building insurance or obtain it from your strata company (if a strata unit) and return this with your loan documents or send to email@example.com
At settlement, for a purchase, your conveyancer, the vendor and lenders solicitor will liaise to settle on your property.
Once the property is settled, your agent will be notified and can release the keys to you.
Congratulations! you are the owner of the property.
For a refinance, settlement still occurs but the mortgagor on the title is changed.
A Tip – please ensure you have any necessary funds in the shortfall account 3 days prior to the settlement date. This ensures the conveyancer can draw on these funds to complete the purchase
1. Check your loan amount, interest rate, product and that the offset account is linked (if you have an offset account)
2. Know your repayment date. If you opted for monthly, then it will be one month from the settlement date. If it’s one week, then it will be one week from your settlement date.
3. If you obtained any additional cash or completed an equity release, please that the offset account is linked and the released funds are sitting in offset – this is to avoid any unnecessary interest being charged