How to apply for a home loan

Applying for a home loan becomes fairly simple when you break it down into a few steps:

• Find a suitable home loan and lender.
• Collect your identification and income documents.
• Submit your application.

To increase your chances of success, you need to make sure you have all the paperwork, have your spending under control and consider getting pre-approval before you buy.

Finding a lender and getting pre-approval

You don't need to have a home loan organised before buying a property. You can't even complete a full application until you have a property address and a contract of sale (in other words, you've found a property, negotiated a price and agreed to buy it).

This is because your lender needs to conduct a valuation on the property you're buying before it approves the loan.

But a well-organised buyer starts comparing home loans and lenders in advance. This helps you understand your borrowing capacity and means less stress in rushing to find a loan before settlement day.

You can find a home loan by doing the following:

• Comparing home loans online.
• Applying directly with a lender.
• Talking to your current bank.
• Speaking to a mortgage broker, who will help you find a loan.

Pre-approval

Some lenders offer pre-approval or conditional approval. Pre-approval means you submit a short, initial application and the lender offers a quick assessment of how much they might be willing to lend you. It's not binding, but it means you've started the home loan application process.

And if you're buying at auction, having pre-approval gives you an advantage over another bidder who doesn't have it.

Collect your home loan application documents

When applying for a home loan, you need to gather documents or other evidence of your income, debts and proof of identity.

• Identity documents. You need documents to establish your identity, including a birth certificate, passport or driver's licence.
• Proof of income. Your lender may be able to process this via your online banking platform, but if not, you will need to provide payslips as proof of your income. If you're self-employed, you won't have payslips and will need to provide a recent tax assessment or a business activity statement (BAS).
• Debts, assets, liabilities. Bank and credit card statements can be used to establish your savings and debts. Be sure to include statements from every debt, including personal loans and existing mortgages.
• Details about the property. You need the address of the property you're buying and a contract of sale signed by you and the seller. The lender may also require a certificate of currency, a document that proves you have an insurance policy covering the property.

Read more about the documents required for a home loan

The more complex your financial situation, the more supporting documents you will need. For example, if you're applying for a construction loan, you'll need a copy of the building contract. If you're a first home buyer with a guarantor, then the lender requires details about your guarantor's property.

Verification and credit check

Once the lender has your application, it will check the documents and verify your identity. The lender will also perform a credit check.

Completing the mortgage application

Every lender has its own application process. Most applications can be completed online. If you're using a mortgage broker, you can expect the broker to help you with the application.

Fill everything out and make sure to put in all the correct details. This makes sure the process moves as smoothly as possible.

As part of the application process, you will need to detail your monthly spending. Lenders break this down into different categories such as health, food and groceries, education, transportation and entertainment.

Your lender will examine your spending and compare it to the information contained in your income documents and bank statements. Getting your spending under control in the months before applying for a home loan puts you in a better position.

Finding a conveyancer

When you're in the process of buying a property, you need to engage a conveyancer. This is a type of legal specialist who handles property titles and all the legal aspects of a property purchase.

It's a good idea to engage a conveyancer when you're applying for a loan or even beforehand. A conveyancer should look over the contract of sale and the mortgage contract. They will also represent you at settlement.

When is the best time to apply for a home loan?

You can get pre-approval or begin the application process before sealing the deal on a property, but you can't actually get a home loan until you have signed the contract of sale.

It's entirely possible to find and apply for a home loan after you've found a property to buy. The biggest downside is you might have to rush to get everything organised before settlement. And if you can't find a lender because your borrowing capacity is too low or you don't meet the lender's criteria, the sale could fall through.

But the more organised you are in advance, the easier everything gets. Even if you don't get official pre-approval from a lender, you can start researching loans, find a conveyancer and gather your mortgage paperwork.

Learn more about the settlement process

Tips to making a stronger loan application

Now that you have a better understanding of the application process, let's explore the steps you can take to make your application stronger.

Get your spending under control

Put yourself in a stronger position months before your home loan application begins by looking carefully at your spending and income.

Lenders will scrutinise your home loan application and are more likely to reject you if your spending is too high relative to your income. How high is too high? Each lender has its own eligibility criteria, but as a general rule, if your mortgage repayments would take up more than 30% of your monthly income, you're deemed to be a higher risk applicant.

A lender will likely ask you to assess your monthly spending, broken down into various categories (spending on utilities, food, entertainment, transportation). But don't be too rough in your estimate. Your lender will also look at your bank statements and other financial information. If you drastically underestimate your spending, it won't help you.

Trim your spending three to six months before applying for a home loan

A lender will look at your recent spending, usually over the last three to six months before you apply. To maximise your chances of approval, try to avoid making big, unnecessary purchases during those months.

If you have to make a large purchase, be sure to keep receipts so you can demonstrate that the purchase was a one-off. Spending $2,000 on a new television will blow out your spending on any given month, but you're unlikely to buy a flat-screen TV every month. Regular, large purchases are a much bigger red flag.

Anything you can do to trim down your spending can help your home loan application. Here are a few suggestions to get you started:

• Review your recent spending and start tracking this via an app if you aren't already. Identify areas where you are spending too much and see if there are any obvious ways you can cut down.
• Make a budget. Once you've reviewed your spending, you can start to set a realistic monthly budget. Having a budget written down should hopefully make it easier to follow through and actually spend less.
• Look at those small, ongoing monthly costs such as streaming service subscriptions and memberships. You might be better off rotating between services rather than, say, paying for Stan and Netflix each month. A gym membership is probably a very sensible expense – if you use it. If not, consider cancelling.

Check out Finder's 50 money-saving tips for more inspiration

Check your credit score

Once you apply for a home loan or start the process with a broker, the next step will be a detailed check of your credit report. But there's nothing stopping you from checking it yourself before you apply. Doing so could help you identify any credit problems you may not know about. You might even find credit problems that are mistakes, and getting those rectified before applying will help your chances of approval.

You can check your credit score for free through Finder.

Your property affects your application

The property you are looking to buy impacts your home loan application. This is because the property acts as security, meaning that the lender can recoup its loss if you can't repay your loan by taking and selling the property.

If the lender feels the property will be hard to sell or is worth much less than you're paying for it, your application may be rejected. If you are buying a small apartment in a postcode where there are many apartments being built, your lender may be hesitant to lend to you. Or it may agree to lend you a smaller amount relative to your deposit size (say, 70% of the property's value rather than 80%).

When applying for a home loan, it's good to check with a lender before submitting a full application. You can tell it the address of the property you're interested in or check if there are any restrictions on lending for apartments in the postcodes you're interested in.

More home loan application tips and help

If you think the whole process of finding and applying for a home loan is simply too much effort, or even if you're still a bit confused and need some help, talk to a mortgage broker. A mortgage broker is a qualified professional who can not only help you find a home loan but also help you through the entire home loan application process to the approval stage.

• How lenders calculate your living expenses
• Tips to increase how much you can borrow
• How much should you borrow for your loan?

More questions about applying for a mortgage

Here are a few common questions many borrowers have about the home loan process.

How long is the average home loan approval time?

Home loan processing and approval varies depending on the lender, the property and your particular circumstances. If you're purchasing a house (not a unit) with a 20% deposit and a stable income, your approval could take days. More complex applications, with smaller deposits or unusual properties (small units or rural properties, for example) can take longer.

Your lender may be currently very busy processing many applications, which can slow things down. Other lenders offer fast online approvals. This is a good option if your application is straightforward but you're in a rush.

Compare online lenders

A mortgage broker can also help you find a lender who can process your loan fast. Brokers have contacts at multiple lenders and are well-placed to find one that can handle your application faster.

Can I apply for a home loan completely online?

You can. There are many online lenders in the market who only offer online service and don't have physical branches. Keep in mind that some parts of the home buying process, such as dealing with a conveyancer, or getting your identity verified, may require a face-to-face meeting. Although these days some lenders and conveyancers may be able to facilitate every part of the process online.

What do I do if my application gets rejected?

This does happen. The trick is not to panic. Instead, you need to work out where you went wrong and take the necessary steps to have a solid application next time.

Application rejected? Here's what you need to do

The home buying process step by step

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Name	Interest Rate p.a.	Comparison Rate p.a.	Fees	Monthly Payment
Unloan Variable Home Loan Principal & Interest20% min. depositOwner-occupierRefinance	Interest Rate 5.74%	Comparison Rate 5.65%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $876	Go to siteMore Info Compare
Up Home Loan Variable Rate Principal & Interest10% min. depositOwner-occupierOffset account	Interest Rate 6.15%	Comparison Rate 6.15%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $915	Go to siteMore Info Compare
HSBC Home Value Loan Principal & Interest40% min. depositOwner-occupier	Interest Rate 5.99%	Comparison Rate 5.99%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $900	Go to siteMore Info Compare
loans.com.au Variable Home Loan Principal & Interest10% min. depositOwner-occupier	Interest Rate 6.04%	Comparison Rate 6.06%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $905	Go to siteMore Info Compare
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Tiimely Own Variable Rate Home Loan Finder AwardPrincipal & Interest10% min. depositOwner-occupier	Interest Rate 5.94%	Comparison Rate 5.95%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $895	Go to siteMore Info Compare
Macquarie Bank Offset Home Loan Package Finder AwardPrincipal & Interest40% min. depositOwner-occupierOffset account	Interest Rate 6.24%	Comparison Rate 6.49%	Fees Application: $0 Ongoing: $248 p.a.	Monthly Payment $924	Go to siteMore Info Compare
Newcastle Permanent Building Society Real Deal Home Loan Principal & Interest20% min. depositOwner-occupierOffset account	Interest Rate 6.04%	Comparison Rate 6.08%	Fees Application: $595 Ongoing: $0 p.a.	Monthly Payment $905	Go to siteMore Info Compare	$2,000 refinance cashback offer Eligible refinancers who apply online and borrow $250K+ (LVR 80% or lower) can get a $2,000 cashback. Terms and conditions apply.
Bendigo Bank Express Variable Home Loan Principal & Interest10% min. depositOwner-occupierOffset account	Interest Rate 5.97%	Comparison Rate 6.12%	Fees Application: $250 Ongoing: $10 per month	Monthly Payment $898	Go to siteMore Info Compare
Homestar Star Gold Principal & Interest30% min. depositOwner-occupierOffset account	Interest Rate 5.98%	Comparison Rate 5.98%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $899	Go to siteMore Info Compare
G&C Mutual Bank First Home Buyer Principal & Interest5% min. depositOwner-occupierOffset accountSpecial Offer	Interest Rate 6.19%	Comparison Rate 6.22%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $919	Go to siteMore Info Compare
Mortgage House Chameleon Home Loan Principal & Interest50% min. depositOwner-occupierOffset account	Interest Rate 5.99%	Comparison Rate 6.03%	Fees Application: $600 Ongoing: $395 p.a.	Monthly Payment $900	Go to siteMore Info Compare
Unloan Variable Home Loan Principal & Interest20% min. depositInvestmentRefinance	Interest Rate 6.04%	Comparison Rate 5.95%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $905	Go to siteMore Info Compare
HSBC Home Value Loan Principal & Interest30% min. depositOwner-occupier	Interest Rate 6.04%	Comparison Rate 6.04%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $905	Go to siteMore Info Compare
Macquarie Bank Basic Home Loan Principal & Interest20% min. depositInvestment	Interest Rate 6.54%	Comparison Rate 6.57%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $953	Go to siteMore Info Compare
Macquarie Bank Basic Home Loan Principal & Interest40% min. depositOwner-occupier	Interest Rate 6.24%	Comparison Rate 6.26%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $924	Go to siteMore Info Compare
Macquarie Bank Offset Home Loan Package Finder AwardPrincipal & Interest20% min. depositOwner-occupierOffset account	Interest Rate 6.30%	Comparison Rate 6.55%	Fees Application: $0 Ongoing: $248 p.a.	Monthly Payment $930	Go to siteMore Info Compare
Macquarie Bank Basic Home Loan Principal & Interest20% min. depositOwner-occupier	Interest Rate 6.30%	Comparison Rate 6.32%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $930	Go to siteMore Info Compare
Macquarie Bank Basic Home Loan Principal & Interest40% min. depositInvestment	Interest Rate 6.44%	Comparison Rate 6.46%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $944	Go to siteMore Info Compare
Macquarie Bank Offset Home Loan Package Principal & Interest20% min. depositInvestmentOffset account	Interest Rate 6.54%	Comparison Rate 6.79%	Fees Application: $0 Ongoing: $248 p.a.	Monthly Payment $953	Go to siteMore Info Compare
Up Home Loan Fixed Rate Principal & Interest 1Y Fixed10% min. depositOwner-occupierOffset account	Interest Rate 6.50%	Comparison Rate 6.19%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $949	Go to siteMore Info Compare

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Frequently asked questions

• Does gambling affect your mortgage application?

  When you apply for a home loan your lender will look closely at your spending habits: that includes money spent on gambling. The impact on a mortgage application varies depending on your circumstances and how much you gamble.

  Regular examples of gambling could hurt your borrowing power or result in a rejected application. This is because you could:
  End up missing repayments
  Have lower savings
  Have more debt
  Have increased ongoing expenses

  For help with gambling visit the Gambling Help website.

• Does having a car loan affect your mortgage application?

  When you apply for a home loan you'll need to provide information on your other debts and expenses, including if you have a car loan. This is so they can assess how much income you have left to service your repayments.

  Having a car loan usually won't be enough to reject your home loan application, but it may reduce your borrowing power.

  "Car loans will reduce affordability," Lynch says. "Each bank has different assessment criteria and policy when looking at an individual's ability to repay a loan. It's not uncommon to find some lenders will offer a more favourable servicing policy than others, and those who do have car loans and want to borrow more will find it useful to shop around.