The Home Loan Application Process
To begin with please keep in mind that the Australian home loan mortgage sector is highly regulated. Unlike many countries Australian lenders cannot simply lend on the strength of the asset. Consumer protection laws mean that a lender who doesn't conduct due diligence to ensure the borrower can afford the loan, risks having their licence cancelled with severe fines..
Prudential regulation and the limited access to LMI (mortgage insurance) providers restricts the level of exposure for lenders both in dollar terms and LVR (loan valuation ratio) on different types of property. A prime inner city apartment may be very difficult to finance even for Australian residents without a substantial deposit.
Once your application is submitted it is initially processed and as long as the information in the application meets lender's policy a conditional approval is issued. You should never proceed on a contract based only on a conditional approval. A broken contract can mean much more than the loss of your deposit.Once you provide a contract of sale ( it doesn't have to be signed ) the lender will order a valuation and begin the process of checking all of the supporting documentation ie: everything stated in the application must be supported eg: your stated income must be verified by the provision of at least two of the following; pay slips and/or tax assessments and/or a letter from your employer and/or bank statements showing the payments. Any discrepancy will be queried and satisfactory explanations required. Once a satisfactory valuers report comes in (usually 2-3 days after being ordered) the loan is assessed and if necessary then submitted to the mortgage insurers (LMI) for final approval. Only then is the unconditional approval issued - however even an unconditional approval can be rescinded if your circumstances change.
Another aspect of applying for a home loan from overseas that many people ignore is the CRA (credit report) - every application and most inquires will appear on your CRA - even credit card inquiries. When a lender sees 6 inquiries over the last 2 years, they want an explanation. If LMI is involved this can be a serious barrier. We strongly urge you to select your lender carefully and avoid multiple applications.
So for the best result we suggest that you:
- Select a short list of the lenders available to you
- We check your borrowing capacity against their actual back- office calculators (not the ones on their web site).
- Make sure you have all of your supporting documentation required by the lender ready (exactly what they ask for)
- We then submit the home loan application
Of course things can go wrong and some lenders are amazingly adept in misinterpreting verbal and written instructions. That is where we really come into play.
- we stay in contact with the credit assessors to ensure they understand your needs,
- then we monitor the progress and intervene when necessary in order to correct an obstacle before it becomes a barrier,
- we keep you informed through the entire process... and for all that you pay us nothing!
A Few Important Tips
- Try to provide all supporting documentation exactly as requested and as soon as possible. Many lenders will not begin the process until all documentation is in hand. Know exactly what you want before applying. Changes to an application will cause delays, multiple changes can result in your application being regarded as flippant and consequently deprioritised. It is very difficult to then escalate the process.
- There is limited competition in the Australian market so have a realistic expectation of what they will offer and the quality of service that they will provide.
- Arrange access to legal advice. The mortgage documents are a contract and as such we are not qualified or indemnified to advise you on anything pertaining to the contract. If you are buying in Queensland get legal advice before entering into a contract as penalties for late settlement are severe.
- The loan process is not contiguous. The application assessment period is usually around 10 working days. Then documents are prepared and despatched to you for signing and return typically another 10-15 working days. As you approach settlement date more parties become involved, pressure mounts and as a result opportunity for errors arise and delays at this stage can be costly. Loan documents must always be originals, lenders will not act on faxed copies and they cannot simply be changed and initialed, any error requires the documents to be re-issue and re-sent causing another 10-15 day delay. Make all of your involvement in as timely a manner as possible, do not be complacent with weeks to settlement. Ensure that your legal/settlement agents are also working actively towards settlement.
- So have a realistic time frame and allow for possible delays. Typically a new purchase will be 4 to 6 weeks from the submission of all documentation. Refinances can be quicker however the discharging lender can cause delays. If you have a 28 day settlement contract immediately request that it be extended and reconsider signing a contract with a vendor who is not prepared to be flexible on this. Lenders rarely accept responsibility for delayed settlement and fees can apply.
- Try to avoid overseas travel or being otherwise unavailable during the loan period. Murphy's Law was invented by the banks.