First Home Buyer Loan Process – The Ultimate Guide

Before you start applying for home loans, a vital part of the process is getting your personal finances in order. You will need to build a history of savings, pay back debts, and conduct research on what the best home loans is for you. 

Save for a Deposit

A simple step but a very important one. Basically, the bigger your deposit, the more you can borrow. Most lenders require a minimum deposit between 10–20% of the value of the property you’re hoping to purchase. You can avoid paying a deposit if you apply with a guarantor, or apply to certain government initiatives such as the Home Guarantee Scheme. 

Pay Any Debts

If you have any outstanding debts, try to pay them down at least 12 months before you apply for a home loan. This signals financial responsibility to any lenders looking through your bank statements. You want to make as good of an impression as possible, so be sure to pay any debts off as soon as you can.

Check Credit Score

In Australia, credit scores are only important if you have a bad credit score. If you’ve always paid your bills and utilities on time and have never had any overdue debts, you’re likely to have a good credit score, even if you’ve never owned a credit card. If you want to make sure, you can request a copy of your credit score from Equifax, Illion, or Experian so you can catch any red flags before a lender sees them.

Estimate Borrowing Capacity

Your borrowing capacity is how much a lender is willing to lend based on your income and financial situation. Knowing the borrowing capacity you can expect from a lender is important, as it lets you budget the kind of property you can buy. There are a multitude of online calculators you can use to estimate this.

Understand your LVR 

A loan-to-value ratio LVR is a percentage calculated based on your deposit amount and the total you need to borrow to buy a property. 

For example, if you want to buy a home for 750,000 AUD with a deposit of 190,000 AUD, you’ll need to borrow 560,000 AUD from the bank, i.e., a 70% LVR. If you have an LVR over 80% (in other words, a deposit less than 20%), you will need to pay lender’s mortgage insurance (LMI), which is an additional cost the borrower will need to incur. This amount can be anywhere between 1–5% of your home loan amount. If your LVR is going to be 80% or over, be prepared to pay an LMI cost.

Compare Different Lenders

There are dozens of bank and non-bank lenders that offer home loans. You want to find one that has the lowest rates and is compatible with your financial situation. This is where hiring a finance broker, such as one from InFinancial, can be helpful, as they are deeply knowledgeable about the lending landscape and can get you in contact with the lender that is the best for you.

Once you have done the proper research and found a lender who has the best loan offer, you’ll need to complete the following steps. Follow this first home loan guide, and you’ll be prepared for what to expect from the first home loan buyer process.

Fill out the lender’s home loan application

Here you’ll be asked basic questions about your finances, deposit, and the type of property you’re looking to buy. From this information, the lender will estimate how much you can borrow and at what rate.

Send Through Your Documents

The lender will request documents like payslips, bank statements, and key identification documents. This is to verify your identity and your income. It’s best to submit all your documents at once rather than in bits and pieces. Lenders won’t assess your application until they have all of your documentation.

Get Pre-Approval

If you pass the lender’s credit check, they will give you pre-approval on your home loan. This isn’t an official “yes,” but it’s the vital step needed so you can begin shopping around for properties that fall within the loan amount.

Property Valuation

Once you find a property you want to buy and make a successful offer, the lender will do a property valuation to determine the market value of the home and your LVR. 

Unconditional Approval and Loan Offer

After the contract of sale for the property has been signed, you can get a full approval from your lender. Next, your lender will deliver you a formal loan offer with clear terms on the loan amount and the rate. Make sure details like rates (variable or fixed), repayments (monthly or fortnightly), and figures are all correct. Once you’ve signed a contract, it can be very difficult to get it changed.

Prepare for Settlement

You’re at the final step! This is where you make a final pre-settlement inspection before being handed the deed, and your lender makes the final payment to the property seller.

Get Home Loan Advice Today

Congratulations, you now know the steps on how to apply to a first home buyer loan. That said, the field of home loan buying can be a serpentine and confusing process. That’s why we at InFinancial Services are committed to helping clients navigate their first home loan. Browse our mortgage loan services and connect with home loaan experts.

We help you every step of the way, from understanding mortgage insurance, lender timeframes, and loan processes. At InFinancial Services, our mission is to make the home loan process as simple as possible. Whether you’re beginning to save or ready to buy, we can help you make smart financial decisions today. Contact us today so we can help you.