From Money Magazine
Effie Zahos with a handy five-point checklist to follow when applying for a home loan.
- 100-point check
If you're approaching a lender for the first time ie. you have no existing relationship with them you'll need to be "identified". When you apply for a home loan you have to show identification up to the value of 100 points. A driver's licence earns 40 points, a credit card can earn 25 points and a birth certificate 70 points. Only original documents qualify.
- Questions lenders ask
It's not unusual for a home loan application form to take up to 10 pages. There are four main points lenders look for:
What you need to take
- Your capacity to repay.
- Are you a good financial risk?
- What is your collateral? Meaning is the property you're buying adequate security for the money you are borrowing.
- What are your existing assets? Some of the questions you can expect to be asked are:
- Your dependent children.
- How long have you lived at your current address?
- What do you owe and own?
- Your accountant's details.
- Your personal insurance.
- Your credit cards.
When it comes to the documents you need to support your application, all institutions are likely to ask for the same information. And yes, it is harder if you're self-employed.
To speed up the home loan process, here's what the Commonwealth Bank says you should take:
How much can you borrow?
- At least the two most recent pay slips, and group certificates for the past two years.
- A letter(s) from your employer(s) detailing income (for the past two years) and length of employment,
- Past two years' tax returns and your accountant's details, or past two years' financial statements and your accountant's details. Some institutions may even ask for a profit and loss statement certified by a registered accountant.
- Bank statements including transaction, saving or passbook accounts.
- Investment papers including managed funds or term deposits.
- What you owe and own.
- Details of personal loans, credit cards or charge cards. Up to six months of statements should be produced to support these loans.
- Tax liability (if self-employed).
Life insurance policy details.
- Superannuation details.
- Approximate value of other assets such as furniture and jewellery.
The amount you can borrow depends on what you're buying and how much money you have left when you take out all your fixed commitments from your net income.
If you're buying a home, most lenders will let you borrow up to 80 percent of the purchase price, or 95 percent if you are willing to take on mortgage insurance. Mortgage insurance is designed to protect the lender. A number of online calculators can help you determine how much you can borrow.
There's more to buying a home than the deposit. To avoid any last-minute surprises, see the guide on page 56 for a list of the most common fees and charges you should budget for. Many fees and charges depend on the amount you borrow and the price of the property.
First home buyer's guide
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