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With record increases in interest rates causing lenders to be stricter on borrowers, entering the property market will no doubt feel daunting. Want to feel confident about finding the right home loan? A clear understanding of the steps involved to secure a loan can help! In this article, we will explore the home loan application process and provide insights on how brokers work to help you navigate this landscape successfully.
1. What exactly is a mortgage broker?
Did you know that almost 70% of home loans in Australia are facilitated by mortgage brokers? Australians in record amounts have been utilising the valuable services of mortgage brokers across the country. Here’s why.
Mortgage brokers act as a go between the lenders and the borrowers. Purchasing a home can be a stressful time, and it helps to have the support of someone who understands your needs, can explain any complex jargon, and is legally required to act in your best interests throughout the process. Particularly in the current economy, a broker can be a vital addition to your home loan journey, providing the guidance you need to navigate this landscape successfully.
Mortgage brokers play a critical role in Australia, guiding a wide range of borrowers through the intricate process of securing a home loan. They consider factors such as interest rates, fees, loan features, and repayment terms, ensuring that borrowers make informed decisions that align with their needs. Brokers help borrowers evaluate the pros and cons of different loan options, ultimately leading to a well-informed choice.
Brokers can offer borrowers a selection of home loan options from their broad panel of lenders, including those that may not be accessible to the general public. This extensive network allows brokers to present borrowers with a range of loan options and negotiate competitive interest rates and favourable terms on their behalf. Their expertise is particularly valuable when it comes to understanding the lender’s requirements, and the borrower’s needs, especially when interest rates are fluctuating, like they have been over recent months.
The home loan environment is experiencing an extremely complicated period, and it is more difficult than ever for borrowers to go it alone on their home loan journey. Utilising a mortgage broker, who generally doesn’t cost the borrower anything, means you can rest assured that you’re giving yourself the best chance of success.
2. What are the first steps?
The first step towards obtaining a home loan is reaching out to a mortgage broker either in person or online. During the initial contact, the broker will get to know you better and seek to understand your financial goals while also providing you with a comprehensive list of all the basic documents required for your application.
Given the heightened scrutiny on income stability, it is vital to prepare documentation that highlights your earning capacity and financial stability. Initial supporting documents may include payslips, group certificates, records of savings, bank statements, credit card statements, other loan statements and driver licence or other ID. A mortgage broker will have a checklist of all the documentation they need from you at this initial stage, but it’s best to be prepared.
You can also use this initial contact to clear up any questions you have about home loans, mortgage brokers, complicated jargon, whatever it may be.
A broker exists to support you in any way they can and our experienced mortgage brokers pride themselves on ensuring you clearly understand the property journey you’re embarking on, so don’t be afraid to ask away!
3. What happens next?
After the initial contact, your broker will go through a series of steps to find you the right home loan options. The first step is to discuss your needs and objectives. They will assess your financial situation, evaluating factors such as income, employment stability, credit history, and existing financial commitments.
Given the increased scrutiny on income stability, transparency and communication with your broker are crucial, as it allows them to understand your income risks and align your loan choice with your financial capabilities. This thorough analysis can feel daunting but it helps brokers determine your borrowing capacity and match the most suitable home loan to your needs and circumstances.
Depending on your situation’s complexity your broker may be able to provide some recommendations on the spot or may need to carry out some more research and get back to you. Your broker has a legal obligation to find out about your needs and objectives before recommending a suitable loan product, so expect to spend some time going through this part of the process.
When the analysis is complete you will receive home loan recommendations in the form of a credit proposal disclosure document. Sounds serious, right? Don’t worry, it’s a fancy term for a document outlining the home loan options that the broker believes will be best for you. It will provide you with information about any recommended loan – such as expected repayment amounts, total cost, loan features, upfront fees and estimated commissions.
4. Decision Time
Once your broker presents you with recommendations, it’s up to you to make the final decision. Use the information provided to carefully evaluate loan rates, fees, and features to ensure they are consistent with your expectations and requirements so that the loan you select has the right mix of options for you.
Do you want the ability to make extra repayments? Will you be setting up an offset account? It is essential to consider the details and check in with your broker if you have any questions or concerns at this point.
Keep the turnaround time associated with your loan (the time it is going to take to get it approved and settled once you decide) in mind while you consider, particularly if you need a settlement as soon as possible. In general this is 4 – 6 weeks, depending on how complex an application you have submitted. You will want to tell your broker about any time constraints you have as early on in the process as you can.
5. Submitting the Application and Lender’s Decision
After choosing the most suitable loan, your broker will handle the paperwork and submit your application to the lender. Particularly in the current market, lenders may require additional supporting documentation to assess the stability of your income so expect ongoing dialogue with your broker. Brokers will liaise with you to ensure that all requirements are met, increasing the chances of a smooth and successful loan approval. Ultimately, considering your income level, stability, and other factors, the lender will make a decision on your application.
If everything goes according to plan your loan will get approved, however, if your loan gets rejected your broker’s work does not cease, they will help you figure out another option. If your application is approved, expect some additional formal steps to be asked of you, such as signing mortgage and loan documents, arranging insurance, setting up payment options with your lender and other requirements.
The final step, of course, is loan settlement, where you engage a solicitor or conveyancer for the property purchase. The broker can guide you in finding reliable professionals. After settlement, active management of your loan is important, as interest rates can change, and the broker can assist you in monitoring your home loan and making informed decisions in response to market conditions.
Applying for a home loan is a big deal, but You’ve Got This!
In today’s challenging economic landscape, securing a home loan can be a complex endeavour. The key to success lies in engaging the services of a knowledgeable mortgage broker who can guide you through the process, assess your financial situation comprehensively, and present suitable loan options.
Remember, open communication and ongoing collaboration with your broker are paramount, as they can help navigate the ever-changing interest rates and ensure your home loan remains favourable in the long term.