What banks are looking for in a mortgage application: A mortgage broker spills the beans

author-avatar By on March 24, 2021
What banks are looking for in a mortgage application: A mortgage broker spills the beans

Want to turbocharge your home loan application? Marc Barlow from Mortgage Broker Melbourne shares his inside tips.

Aussie lenders, including the big banks, are reporting a boost in business that has surprised many market watchers. House prices across the country are rebounding after a COVID slump in 2020, and lenders are keen to invigorate the economy by approving loans in record numbers.

But anyone applying for a home loan – for a first home or an investment property – still needs to go through a process designed to make sure they’ll be able to service their loan into the future. Nobody wins if a borrower can’t repay their debts. So all lenders have certain details they need to confirm before issuing a loan. Gathering the paperwork can be time consuming, but it’s worth the effort to get everything in order before heading to a lender asking for a loan.

Here are the bits and pieces you’ll need to have on hand to secure a home loan.

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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner-occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Identification

Just like opening a bank account, you need to provide documents that prove you are who you say to are. The most common documents used are a passport or driver’s licence.

If you don’t have these, combinations of documents such as recent utility bills (electricity, gas, etc), birth or citizenship certificates, a Medicare card, or ATO tax assessment usually do the trick. Check this with each borrower you’re considering to make sure your ID will be accepted.

Bank statements

By law, lenders can only lend you what they think you can afford to repay. But different lenders have different rules.

To work out how much you can borrow, lenders need to see recent bank account transactions (no older than 60 days), including credit card statements. Some lenders also want to see your superannuation details, so bring along a recent statement if you can.

Income details

No surprise here: lenders need to know what you earn. Payment summaries from your employer suffice, or a signed letter on letterhead outlining your pay details. If it’s easier, two recent consecutive payslips are usually acceptable.

If you’re self-employed, you’ll need your two most recent tax assessments as well as your current profit-and-loss and balance sheets. A letter from your accountant confirming your income can also be useful. And if you’ve changed employers in the past three months, you’ll also need to bring along your new employment contract.

Evidence of any other income is also needed, including rental income, Centrelink payments, investment dividends, etc. It all helps. If you’re receiving financial help from a friend or relative, they’ll need to complete a statutory declaration stating the value of their contribution.

Related: What are low doc home loans? 

Loans and payments

If you have any other loans (property, car, personal, store cards, etc.) you will need a recent statement containing the loan amount and repayment details.

Many people don’t realise that credit cards are considered the same as loans by lenders. So a card with a $15,000 credit limit is counted against your savings and income, whether you owe anything on it or not. It might be worth thinking about closing credit accounts if you have multiple cards.

If you have any insurances such as life, car, home and contents, or income protection, bring the details along, as the lender needs to understand your ongoing premium commitments.

Related: What type of car insurance should you get?

Living expenses

This is where things get a bit tricky. Lenders will want to know your monthly living expenses. This is so they can work out whether there’ll be enough left over for you to make regular repayments. Living expenses include bills, subscriptions, memberships, entertainment costs including eating out and going to movies, groceriespetrol and more. Lenders don’t count one-off expenses such as for a new car; they’re just looking for day-to-day costs.

When I work with a client to find a loan that’s right for them, I always look through at least the last three months of bank statements to verify the expenses being declared in the application, so I can be sure people can afford the loan they’re contemplating. Cancelling memberships and regular donations, and going out less can take a big chunk out of your expenses.

If we can identify expenses that can be cut back on, we might choose to hold off on applying for a loan for a couple of months. 

Get ready to bargain

Finally, bring along your confidence! If your paperwork and finances are in good shape, you can try negotiating for better loan conditions (reduced fees, added features such as redraw, and even a lower interest rate).

As a mortgage broker, I do this all of the time on behalf of my clients, in addition to helping with preparation of paperwork and completing the loan application. It’s surprising how often banks will negotiate, especially for potential borrowers with a good financial history.

Good luck!


Photo via Amy Hirschi on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Marc Barlow is the principal at Mortgage Broker Melbourne and has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!

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