How does the Home Loan process work for established homes?
Buying your first home can be a daunting concept with much of the process shrouded in mystery. It is understandable and expected that numerous buyers want to know the ins and outs of each step before they take the plunge to buy their first home.
1. Initial assessment and loan selection
Many buyers will start the home loan process by meeting with a mortgage broker or the bank of their choice so that they can secure a future home or one that they have set their sights on. Your credit score and additional requested information will be reviewed to gain an insight into your financial circumstances. Typically, this would involve knowing and understanding your sources of income, expenses, servicing capacity, assets & liabilities, any applicable grants, you preferences for the account and lender and current market conditions and interest rates available.
Based on this, and by completing any requested documents, your broker or bank will be able to estimate your borrowing capacity. A broker should present you with multiple lender options for you to select from in order to suit your requirements. Any queries you have about the loans can be discussed at this point.
2. Application submission
Once you have decided on the perfect home loan for you, the application with your mortgage broker or bank can begin. You’ll then be presented with the first set of home loan documents, such as the Credit Proposal including PCA Report. These documents will be the final chance to ensure all collected data is correct and for you to review the home loan makeup before submission. If you are happy with everything, then the signing begins!
If you are a First Home Buyer/ builder, remember to complete the WA First Home Buyers Grant (FHOG)/ Rate of Duty form.
When all forms and documents are signed, received and uploaded, the application can formally be submitted to the lender.
3. Pre-Approval/ Conditional Approval
When a lender receives an application and the required supporting documents, they’ll assess your application and confirm if it fits within their policies and necessities. If all criteria has been met, a conditional approval will be issued, meaning that your loan has been assessed and approved subject to any outstanding items. Note this is not finance approval!
Common conditions subject to approval include; a valuation of the property/security, updated payslips or bank statements, employment verification via telephone call to your employer or a fully signed and dated contract of sale and any annexures.
This conditional approval can be classed as a pre-approval and the subsequent letter issued can be given to any real estate agent as evidence. A pre-approval can be very useful as it will give you an idea of what you want are able to borrow up to and if you find the perfect property, you will have already started the home loan process, which can be attractive to sellers. Pre-approvals typically last for 90 days with most lenders. If required, they can be extended by providing up to date pay slips and other documentation after the initial 90 day period expires.
If you have found a property or a valuation hasn’t been conducted, a lender will order an independent valuation. Depending on your loan to value ratio, a valuation may not even be required. If an upfront valuation has already been completed prior to submission, the lender will skip this step and go straight to formal approval.
4. Unconditional Approval/ Formal Approval
Hurray! If you achieve this step, your lender would have made their final assessment and have decided that they are happy to lend you the money. A Formal Approval Letter or Unconditional Approval will be issued. Any external parties, such as real estate agents and conveyancers, will be notified that your finance has been approved.
5. Loan Documentation
When the home loan has been formally approved, the lender will either email or post you the loan documentation. Make sure you check for errors as these happen more than you’d think! This is also the time to review the documentation with a solicitor if you’d like to receive independent legal advice.
Should all documents be correct and have all been signed, all documents must be returned. Your lender will require evidence that you have building insurance in place on the secured property with them being noted as an interested party.
Here is the exciting part- Settlement! Once the lender’s conveyancer has certified that all your returned signed loan documents are in order (and any FHOG has been approved), they can then schedule settlement. Your settlement agent/ conveyancer will book in a settlement time and date with the lender. The time period between receiving the notification to settle your property and the actual settlement date is dependent upon your contract of sale and will vary across different properties.
Congratulations for when you get to this stage! Once your settlement is complete and you’re now the owner, the home loan will be advanced/ drawn down and the funds disbursed to relevant parties.
Generally, in Western Australia, the settlement process is facilitated by the following people:
- A representative from the buyer’s settlement agent
- A representative from the seller’s settlement agent
- A representative from the buyer’s lender
- A representative from the seller’s lender
Usually the buyer and seller themselves don’t attend – instead, their settlement agents act on their behalf.
7. Post Settlement
Make sure once the home loan has gone through, you are on top of the repayment system and that you understand the loan. It would also be a good idea to review any final statements to ensure you haven’t been over charged.
Every year or so, it would be beneficial to review your home loan, review the interest rate, switch loan products (if necessary), monitor the value of your property and make sure that you are getting the most out of your loan.
The time it takes to get a home loan approved can vary. It will generally take 7-21 Days to get finance approval from the first meeting with your broker and bank. And that’s it in a nutshell!
If you have starting the home loan process and have begun the hunt for your first home, be sure to visit https://www.pindan.com.au/sales-and-leasing
for available homes and land for sale.
Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.