Guide on how to apply for a home loan

6 min read | 10 Aug 2022

Wise folk say, “Failing to prepare, is really preparing to fail.” That’s definitely the case when it comes to either buying or missing out on a property because you didn’t have your finances locked and loaded. But when you understand the steps in the home loan application process, your chances of getting a thumbs up from a lender only get better. Sure, it can take a bit of time, but it’s totally worth it and not particularly complicated.

Follow our guide to find out how to apply for a home loan.

First things first - take the following steps to ensure that, when you eventually put in your home loan application, it’s as strong as can be, so when a lender reviews it, they’re pleased to do business with you.

It’s important to have a healthy credit rating, so find out the state of yours. Would-be borrowers with bad credit ratings have a lot of trouble getting approved for loans. To tone up yours, you want to show a pattern of controlled and untroubled money management, and paying all your bills on or before they’re due is a solid way to make yourself look good.

Also, lower your credit card limits and don’t apply for any new credit. You want to show that you’re ready and willing to live within your means.

If you’re applying for home loan pre-approval, limit yourself to just one or two lenders. Each application shows up on your credit history even if you don’t take it up. It makes you look like you’re running around town trying to borrow money, which lenders see as a bad look that drags down your rating score.

Having all your money ins and outs in a spreadsheet doesn’t just make it easier to control your money and grow what you’re saving up as a deposit. A lender’s going to want to understand where your money goes as part of assessing your repayment capability, so you might as well draw up your budget well in advance and start living with it asap.

Lenders feel pretty reluctant if your monthly repayments are 35% or more of your monthly income, so be prepared to make some changes if that’d be the case for you. On the flip side, they also feel much more comfortable when you put down a large deposit, so to make that good impression, aim to reduce your spending generally and put the savings into a savings account.

If you still owe money on a credit card, personal loan or any other debt like HECS, it reduces what you have left to make mortgage repayments. So try to pay them out before you apply, or at least get them as low as possible. It’ll make your ability to make repayments look much healthier, and improve your credit rating too.

From variable-rate, fixed-rate, principal & interest, interest-only, home equity and construction loans, through to offset accounts and redraw facilities. They each have their place, so do your research to find the most appropriate kind for you.

Visit our Home Loans Application Checklist page, which spells out all the details and documents you’ll need to have ready to apply for a home loan.

OK, so you’ve finally found the property you want to buy. You’re in the best financial shape possible; your deposit is at least 20% of the purchase price, and you know which loan you want, how much you want to borrow, and from which lender.

Here are the main stages you can look forward to next when applying for a home loan:

1. Submit your application with all your documents

2. Your potential lender reviews your application, including your credit history

3. The lender completes a property valuation to confirm it’s realistic

4. They decide to either approve or reject your loan application

5. If they approve, they send you their offer

6. You read through all the terms and conditions

7. If you’re on board, the loan is settled

8. The funds are forwarded

9. Lots of celebrating

A home loan has to be tied to a specific property, so there’s no point putting in an application until you’ve found a property a seller has agreed to sell you.

In the meantime, though, you can get yourself partially sorted so you’re as ready as you can be while on the property hunt.

Home loan pre-approval is where you get a lender to tell you how much they’d be theoretically willing to lend you to purchase a property. It’s not binding on either you or them, but for 90 days, it lets you make offers on properties and feel confident the lender will likely follow through and approve a full loan application.

Or, you can also simply freestyle and put in your application after you’ve put in your offer, which would be “subject to finance”. You do take a risk, though, as sellers aren’t as keen on these because there’s more risk the buyer won’t get finance, and the deal falls through.

From application to settlement, allow 4-6 weeks. If you don’t get approved, you’ll probably hear sooner.

Yes, but… Every time you apply for a loan, the lender evaluating your application checks your credit history. Loan applications that don’t proceed can be interpreted as loan rejections, so if you’ve made lots of applications in a short time, lenders might assume other lenders all said no because they found out you were a risky borrower - and they’ll then say no too.

So rather than do potential damage to your credit rating, do some research and find exactly the loan and lender best for you. The loan shouldn’t just fit your needs; you should also fit the eligibility requirements of the lender. If everything syncs, apply with just that lender because your application is more likely to be approved.

There are laws in place that require Australian lenders to lend “responsibly”, so it’s harder to get approval if your credit history is a bit patchy. However, you’re still in with a shot because it’s not the only thing lenders consider. Your income, expenses, employment status, how much you want to borrow and the size of your deposit all get weighed up too, to give a clearer picture of you overall and the factors that will make sure you can manage your repayments. Plus, not all lenders view all defaults as seriously as others, such as if they were only for a small amount, if you’ve settled the debt, or if it's from a long time ago.

There’s nothing stopping you from applying solo if that would make you more comfortable. Plus, if you have a strong financial history but your partner doesn’t, it might be the best way to put forward a strong-looking application. Bear in mind that the loan will therefore be assessed only on your income, which could affect borrowing power and getting approved.

Every time you apply for any kind of loan, the lender evaluating your application will look at your credit history and score. Each time a lender does this, it causes a minor drop in your rating. That’s why it’s best to limit your applications to just the lender you’re sure you want to borrow from.

Every lender wants to know you have the regular income to repay a loan, so your chances aren’t great. At the same time, there are a few ways you might be able to get approved while unemployed. Having a steady stream of income from shares, royalties from a book or song, or rent from a tenant might work, or even having savings in the bank you can draw upon to make your repayments (though they’d probably want to know why you don’t just use those funds to bypass asking for a loan).

Filling out application forms and digging up old financial records is usually a drag. But we’ve tried to make the application process as smooth as possible, plus we’ve outlined the details and documents you’ll need to put an application in with us. So make things a little easier on yourself and check out our Application Checklist.