Get your mortgage approved the first time around
A home loan application can take up to two weeks before a borrower is approved for finance. But there are so many variables, asking how long it takes to complete a loan application can be like asking, ‘How long is a piece of string?’
There are no actual ways to speed up or accelerate the home loan application process, bank valuations and credit checks must be organised for the application to proceed and these things take time. All the borrower can do is make sure that they previously prepared themselves for taking on mortgage and have all the necessary documentation up to date and in order for when it's needed by the lender.
What do the experts say?
‘It’s one of those things where it’s not always up to the lender,’ says Heidi Armstrong, co-founder and director of State Custodians Mortgage Company.
Heidi Armstrong, State Custodians Mortgage Company
How long does the home loan application process take?
‘Invariably lenders are chasing borrowers for outstanding information. And we need the information,’ she continues. ‘It would be great to be completely paperless, but unfortunately we need to confirm things such as your savings and employment.’
‘In a good case scenario, you might be looking at 48 hours. In a bad case scenario where everything is going wrong, it’s very difficult and the borrower doesn’t have all their information at hand, it could be a two week process,’ Armstrong says.
And it’s a process that will take a similar timeframe for first home buyers, people refinancing their home loan and investors alike. Belinda Williamson, spokesperson for Mortgage Choice says, ‘Even if someone has equity they can use in their property, they will still need to apply for a loan, complete the necessary paperwork and submit the required documentation to get approved.’ The only difference, she continues, ‘Is that people who are refinancing have been through the process once before, so they know what they’re doing and generally avoid the time consuming mistakes people make when they’re applying for a loan.’
So what’s the process and how do you avoid the mistakes people make when applying for a home loan? Read on to find out.
Home loan application timeline
Just how long does home loan approval take? From application to settlement, you're generally looking at 4 - 8 weeks. But you can have your loan unconditionally approved in around 10 days from your initial application.
How long does pre-approval take? (1 - 2 business days)
‘Applying for pre-approval is a good first step’, says Williamson. ‘Getting pre-approved for a specified amount (the maximum amount you can afford to borrow and repay) gives you an idea of the type of property you will be able to buy and in what location,’ she continues. ‘A borrower who is pre-approved will be in a better position to negotiate a deal on a chosen property.’
Williamson advises that it’s better to get this process done first, with full credit checks, as you’re getting more out of the way earlier on in the loan application process. Going through the motions and checks during the pre-approval stage of the home application process will save you from having to repeat these steps later on. Borrowers can also move ahead in the process with the added security of knowing that their preliminary credit checks have been done and covered. Pre-approval can be done on the spot or it can take half a day with your mortgage broker or lender’s home loan consultant.
Submitting a loan application
For your loan application to progress past this step, you will need to provide documentation on your assets, income, expenses and liabilities. You will need to bring these documents with you to your consultation with a mortgage broker or lending specialist. The application can not progress to the assessment stage if you don’t have this information on hand.
Your mortgage broker will provide a list of all the things you need to supply before you come to the consultation and your lending specialist should provide you with the same information.
Williamson says that Mortgage Choice brokers ask their clients to provide the following information:
- Copies of your recent payslips for the last 3 - 6 months and previous group certificates. If the borrower is self employed they will need to provide Business Activity Statements (BAS) for the past two years.
- Any other information about any other areas of income - investors may have sources of rental income.
- Information about assets. Details about things like shares, investments, term deposits, savings accounts, vehicles or any other major assets.
- Details of all your expenses, including HECS Debt, school fees, phone bills, rent or any other expense.
‘Organising these documents is part of a borrowers due diligence,’ Williamson says. ‘The sooner a borrower can get this information together, the better off they will be in the long run.’
For people who can’t provide all of the information above and are looking to take out a low documentation loan, the process will take longer.
How long does conditional approval take? (3 - 5 business days)
Here the lender looks at your ability to borrow funds and service the debt. Borrowers will be either conditionally approved, pending a property valuation, or will be given full approval. This will take between 3 - 5 business days, depending on the volume of applications being handled by that particular lender at that time.
How long does a valuation take? (3 - 5 business days)
After conditional approval has been granted, the lender will order a valuation on the property to assess the value of the loan security.
Armstrong says this is where it can take some time. ‘It’s really the valuation that can hold up the process because the valuer has to go out and value the property and then send in the report - that can be a 48 hour turnaround - so you have to factor that in,’ she says.
Lender’s mortgage insurance (1 - 2 business days)
Depending on the size of the deposit, borrowers may be required to pay LMI. If the loan to value ratio is over 80%, then the application will be passed to a mortgage insurer, either handled in house or externally and is subject to further credit checks. This will take between one or two business days after the property valuation has been received.
How long does unconditional approval take? (5 - 10 business days)
The final step, this involves meeting with your loan specialist or broker to pick up the contract. From application to unconditional approval can take
Avoid these time consuming mistakes
Belinda Williamson walks us through the two most common issues that hold up a home loan application.
1. Make sure you have a steady employment history
‘Lenders want to see a steady employment history or healthy employment record,’ Williamson says. ‘If a borrower changes jobs frequently, they need to provide a good explanation to their lender.’ An explanation may also be needed, Williamson says, ‘If a person has received a pay rise or promotion in recent months - lenders look for change.’
A borrower should have a record of 6 to 12 months of steady employment in addition to a good history of savings. ‘Genuine savings is a really important thing,’ says Armstrong. ’Borrowers need to demonstrate that they’ve held genuine savings - it’s things like that that help an application’.
This means showing a record of depositing funds at regular intervals. Lump sums are fine from time to time, but relying large deposits of money into a savings account for a home loan deposit, can signal alarm bells in the eyes of some lenders. This is especially true if you've received a gift of money.
2. Check your credit report before applying
Williamson says that borrowers should be well acquainted with the entries on their credit report before they even sit down with a home loan consultant or broker. ‘If you’ve defaulted on something as simple as a phone bill in the past, that can affect your credit history. If you have blemishes on your file it’s important to go back and correct that.’
Be aware of the tricks and trips that come with a home loan application and you can ensure that you will get your loan as quickly as possible.
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