How to get a home loan in Australia


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Taking out a home loan or refinancing your existing one is not an easy decision to make. It is a long-term commitment. A commitment that requires significant financial decisions in every step you take towards getting the dream house you always wanted! Your borrowing power. Your credit history. Your saving and spending habits. Your ability to pay bills in the past. Literally, every information that your lender will use to assess your creditworthiness is crucial in determining whether or not you'll be approved!

That is exactly what this blog post is about! To guide you through a step-by-step approach to getting a home loan that's right for you. To get a bigger picture of you as a borrower before applying for a home loan.

So head on to the following section to read and read on.

How do I go about getting a home loan?

To help you get started with your home loan application process and make sure the application process is as smooth as possible, we’ve put together an all-in-one helpful application checklist to guide you in every stage from your first meeting with a lender to the day you move in. Let’s get started!

Stage one: pre-approval

Home loan pre-approval, also known as conditional approval means that a lender has agreed, in principle, to lend you money towards the purchase of your home but hasn't proceeded to full or final approval. To be exact, your selected lender will first assess your ability to repay the loan. In other words, your creditworthiness. To do that, they will look at how much you owe (loans, credit cards etc.), and how much you own (assets including cars, shares etc.). Typically, your lender will perform a credit check on you with an external credit bureau. And each time they run a credit check on you, it is recorded on your credit file and if you have a lot of credit checks, it can reduce your credit score. But why? This is because numerous inquiries indicate that you’re a high-risk customer, as it implies that you may be short of cash or getting ready to rack up a lot of debt. For this reason, it is a good idea to only apply for pre-approval from your preferred lender, instead of applying to multiple lenders.

If the lender deems you eligible, you’ll be granted conditional pre-approval to borrow up to a certain amount. But this depends on lender to lender as they have their own internal yardstick to evaluate you as a borrower and this information is not available publicly.

Note: Most financial institutions offer conditional pre-approval, which lasts for three to six months.

So, what documents do I need to do to get pre-approved for a home loan?

✅  Proof of income

  • Payslips for at least three months,
  • Tax returns that are no longer than 18 months.
  • Bank statements must be no older than 60 days and show the following: Bank/financial institution stationery (logo/ABN), account number, account name, and full transaction history.
  • Proof of savings

✅  Financial details

  • A list of your current assets and liabilities e.g. credit card and personal loan debt.

✅  100 points of ID

  • Driver’s license or permit: 25 points;
  • Passport: 70 points;
  • Birth certification: 70 points;
  • Citizenship certificate: 70 points; and
  • Centrelink pension card: 40 points

✅  Other

If you want to increase your points but don’t have one or more of the above forms of identification, don't worry, you can provide two or more of the following documents to improve your chances of getting a loan:

  • Utilities bill (less than three months old)
  • Rates notice (less than three months old)
  • Tax assessment notice (less than 12 months old)
  • Insurance documents such as home and contents insurance, investment property insurance, income protection, life insurance, total and permanent disablement cover, and trauma cover.

Does this mean I can confidently get pre-approved for a home loan?

Not necessarily. Getting pre-approved doesn’t guarantee your home loan application will be successful. Because at this stage, you usually haven’t found a property, so the lender cannot assess whether the property will fit its lending guidelines.

Besides this, it is still a very good idea to get pre-approval before making an offer on a property because pre-approval indicates the following:  

  • where you may stand with your lender;
  • know exactly how much you can afford;
  • an idea on what type of properties you can buy and in what location; and
  • also puts you in a strong position when you’re ready to make an offer on a home.

As a result, this stage will help you understand your borrowing power (if you see from a lender perspective) versus your borrowing capacity (if you see from a home buyer perspective) and, therefore, will give you a much more reliable answer to the most commonly asked question, “do I qualify for a home loan?”

Does pre-approval have an expiration date?

Pre-approvals typically last long enough for you to find a home or investment property if you are actively looking, but they don’t last forever. A few months is common. The expiry date is there because it is likely that your financial circumstances and the conditions in the property market will be different in a few months compared to now. Your pre-approval should clearly state when it is valid to.

Stage two: How to apply for a loan

You've got a few options:

Apply online – Nowadays you can apply online for a home loan in just 15 minutes. All you need to do is submit the personal and financial details as mentioned above electronically and who knows, you can get a response in 60 seconds.

That’s right! Whether you’re looking to buy a house or refinance your existing loan, with leading home loan lenders on our panel, we can help find a home loan option right for you. Our award-winning partner Athena, for instance, is offering lowest rate home loans starting from 2.19% (comparison rate 2.19%). And the best part? It’s  100% online application, $0 fees, and automatic rate match that includes a discount offer as well. If you’re keen to explore, grab your rate in the WeMoney app here.

PS. getting a quote won't hurt your credit score!

General note: Although you can choose to receive, sign and return many of your home loan documents electronically, due to government regulations some documents will always need to be physically signed and witnessed on paper. In situations like these, your lender will call you within 48 hours of applying online and they will guide you through your next steps.

Apply in person – If you prefer the traditional approach of applying for a home loan, walk into any bank that provides in-person service and one of their Home Lending Specialists will help you out with:

  • Comparing thousands of home loans in just one appointment;
  • Guiding you through the home loan application process and eligibility criteria;
  • How we could save you thousands;
  • Free property & suburb report to help with your search; and
  • Much more.

Apply via phone or leave your contact details - Again, the application process is the same no matter how you prefer to apply. If you want to contact your selected lender directly via phone say Athena for instance, you can call them on 13 35 35 or text on 0429 333 555. Otherwise, you can always leave your contact details here and they’ll get back to you asap.

Stage three: Full approval (also known as formal/unconditional approval)

The home loan application process can be quite lengthy but isn’t too complicated. To sum up, there are 12 basic steps in buying a home:

  1. Comparing home loan providers
  2. Selecting the provider you think is right for you
  3. Gathering your required documents ( see the above section)
  4. A preliminary assessment by the selected lender
  5. Submitting your application to the chosen lender
  6. The lender might grant you a conditional approval
  7. The lender completes a property valuation
  8. The lender approves or rejects the formal loan
  9. They send you an offer
  10. Sign your loan documents
  11. Finalise transaction
  12. The loan is settled and the funds are advanced to you.

How long does the home loan approval take?

The time it takes to get a home loan approval can vary widely as there are many parties involved in the application process, including:

  • Valuers.
  • Building and pest inspectors.
  • Solicitors or conveyancers.
  • Vendors.
  • Real estate agents.
  • Tenants
  • LMI providers and insurers.
  • Yourself.
  • Your mortgage broker.

So, in a situation where the buyer has prepared all the documents required, approval can be expected in as little as three to five business days. But more complex situations will, of course, take longer.

And if you still want to speed up the process, try and provide all necessary documents that the lender asks for the first time around. For example, make sure your supporting documents are the most up-to-date ones. Disclose all the necessary information in detail and sign the mortgage documents and return them as soon as you have agreed to the terms and conditions. And for a safer side, check your credit score for free beforehand so that you can take all the necessary precautions needed to improve your score if it’s needed.

How can I increase my chances of getting a home loan?

Getting a mortgage isn't always easy, especially when lenders seem to be applying more scrutiny than ever to home loan applications. So, here are a few things to increase your chances of a lender saying a big YES.

1. Rein in your spending

Increasingly, lenders want to look at your bank statements to see where your money goes. That is why showcasing a good pattern of spending and saving is extremely important as they reflect your monthly loan repayment amount.  So in order to boost your lender confidence in you, here are 5 things you can do:

Ensure you have a safety net of funds. For example, like your emergency funds in case things go wrong.

Build a track record of sensible spending for at least three to six months before you apply. This means cutting down on excessive lifestyle costs, as well as limiting your spending on items such as impulse buying, alcohol and gambling.

Don’t waste your time chasing over a property you can’t afford. Be realistic, ensuring that the price is within reach will help your chances of getting a home loan. Sit down and review your finances with an accountant to analyse how much you will really be able to afford on your property each month, without putting your household under financial stress.

Save regularly towards a deposit. Show banks and lenders that you have financial stability and can maintain payments for a prolonged period. For example, try to save beyond your deposit amount, it will demonstrate that you still have money to cover ‘life admin’ and low discretionary spending expenses. Therefore the borrower will see this as a sign that you have the financial discipline to keep meeting your loan repayments.

Do a budget check up at Least six months before you apply for a mortgage. This will help you to see if you can reduce your spending to only what’s necessary, such as household bills.

2. Boost your credit rating

One of the key factors a lender will consider when you apply for a home loan is your credit rating. The higher your credit score, the more trustworthy a borrower you’ll seem to be in the eyes of lenders -- and that’s a good thing when you’re asking for what could be a sizeable home loan.  Therefore, you can improve your credit score in a number of ways:

First, be on time with all of your bill payments in the months leading up to your application. Your payment history is the most important factor that goes into calculating your credit score, so you can’t afford to be late.

Next, pay off a chunk of existing debt. Doing so will lower your credit utilisation ratio, which measures the amount of available credit you’re using at once. The lower that number, the more it helps your credit score.

Finally, avoid opening new credit cards in the weeks (or even months) prior to applying for your mortgage. Each time you apply for a new type of financing, it results in a hard inquiry on your credit record, which can knock down your score.

3. Consolidate your debt

Having multiple debts can impact on your ability to repay a home loan especially the high interest rate ones and this can literally make lenders wary of approving your application.

That is why, if you have two or more credit cards, consider consolidating them by transferring their balances to a card with a lower interest rate.

If you have multiple personal loans, consider grouping these together into a single low rate personal loan to reduce your multiple monthly payments to one regular repayment date and provide near-term relief.

Don’t worry! We’ve recently partnered with multi-award winning personal finance and home loan providers to potentially save you some serious $$$.

NOW Finance, for instance,  is an  Australia leading go-to personal loan provider that offer a range of attractive loan products (home loans, personal loans, car loans, including debt consolidation loan and much more) with extremely competitive rates starting as low as 6.95% (comparison rate 6.95%)*  for Excellent Credit. If you are keen to explore it or our other credit products, you can get your personalised rate with  NOW Finance without impacting your credit file. Find out more here.

4. Cancel your unnecessary credit cards

Generally, the more debt you’re carrying, the more you’ll have to commit to it each month and the less likely a lender is to approve your loan application. In fact, for every $1,000 of your card limit, your ability to borrow money for your new home could be reduced by as much as $5,000. Lenders evaluate the minimum payment as 3% of your card's limit, regardless of the amount you still owe your credit card company during your loan application.

Which means, it’s not just money you owe that matters when a lender is assessing your application – it’s your access to money that they’re more interested in. For instance, if you have a credit card with a $10,000 limit, a lender will assess your application as though you need to meet the minimum monthly repayments owed on the full $10,000, even if you only owe $500. To increase your chances of having your home loan approved, you should try to pay off and close down any credit cards you’re not using.

5. Use a guarantor

For loan candidates with bad credit or not having a large enough deposit to satisfy the lender’s minimum loan-to-value ratio (LVR), they could apply for a contractual agreement with another borrower with a strong credit score to increase the chances of loan approval from credit providers. Which means that in the event that the borrower with bad credit does not make repayments regarding the consolidation loan, the co-signer is supposed to be on the hook when it comes to the balance that is outstanding. In simple terms, lenders try to find co-signers who possess good or excellent credit for the most obvious reason; they have sufficient earnings to pay for repayments in the guarantor loan.

Note: Keep in mind that if the guarantor arrangement doesn’t work out, you could severely damage your credit as well as your relationship with the borrower. So unless you can be 100% sure about someone in your immediate family or some type of beneficial ownership to go as guarantor, entering into a co-signing arrangement is risky and we do not recommend it.

6. Choose the lender that fits your lifestyle

Finally, it’s worth remembering that, while every lender will want to be confident you can repay your loan, each has slightly different criteria for how they’ll assess your application. To increase your chances of success, it’s important you apply to the right one.  Take the time to shop around and compare lenders and products in the market. With WeMoney’s award-winning partners such as Athena and, they can do the hard work for you by enabling you to easily and clearly compare home loan features including competitive rates, refinancing options and reduced fees all in-app without impacting your credit score. Plus, things like:

  • Whether an offset account will be right for your financial situation;
  • The types of rates you would like and how competitive these are; and
  • How you can make extra repayments through the loan you decide on.

We understand that all of these are comprehensive to do alone, that's why we can quickly match you with the right lender who’s most likely to approve your loan all inside the WeMoney app here.

How hard is it to get a home loan?

Here are some potential red flags pointers to pay attention to before applying for a mortgage. Make sure you do have answers ready to the following questions.

a) Do you anticipate significant changes in your financial situation in the next three to six months?

b) What are you planning to do over the next six to 12 months? (e.g. no change to current employment)

c) What industry are you employed in?

d) Have you been impacted by changes due to COVID-19?

Remember that lenders want certainty to assure minimal risk when borrowing money to you so they will assess your likelihood to repay the loan depending on your answers to the above questions.

But why is it harder now?

Primarily due to the coronavirus pandemic, there are many changes forced onto the banks by our Government. And this in turn results in lenders needing to change their lending policies to a much stricter version especially with how home loans are processed. For example, lenders are going 100% digital as coronavirus has led to a full lockdown and because of this, they’ve also tightened their lending policies in response to the economic impact of the novel coronavirus pandemic. So, here is what actually changed:

  • Changes in the application process and lender policy due to COVID-19
  • You’ll need to provide more documents
  • The lender will ask more questions
  • Applications take longer to get approved
  • Your living expenses will be scrutinised
  • Your borrowing power will be lower
  • Investment loans are more expensive
  • Interest only loans are on the way out
  • Your retirement age may be assessed
  • Overseas borrowers will find it harder

At the end of the day, banks are still keen to lend, there are just more risks they have to account for. Limits like the ones listed above may seem excessive, but they’re in place to make sure loans are only granted to those who can comfortably pay them off. And if you want to be improve your chances of getting a loan during these vulnerable times, check out the following blog articles put together by Athena on what things you could do to prepare yourself to get in lenders’ good books:

And, Athena can help more than just preparing you to get the home loan you desire! They can accelerate your chances of getting approved by assessing your eligibility requirements and all the info you need to apply for a loan at the best rates. Get started today.

What banks look for when applying for a home loan?

Be honest about your financial position - not only your spending and saving records should be up-to-date but also fraudulent free + consider all your lending criteria as much as possible before applying for a loan.

Avoid paperwork snafus - not having the right documents or submitting it when they asked for it can derail the process.

Shop around- objectively consider all of your options.

Be proactive - once you've done your figures and understand what you can honestly afford, then search for the provider that matches your needs.

It’s not always about the cheapest interest rates -  a much wiser option would be to map out the desired loan structure and features first, before shopping around for lenders that will approve the loan structure at a low rate. WeMoney can help! Find out more about it here.

Make sure you declare all your expenses - this also includes a relatively stable recent employment record – at least six to twelve months or more in your job, receiving regular income.

Do your homework - Educate yourself about the market before you start looking for a property and get a handle on how much you really need before committing to a purchase – and then add a buffer of at least 5% on top. This applies whether you're using equity to fund the deposit or putting in hard-saved cash.

Borrowing power - A buyer’s capacity to afford monthly repayments while still having enough cash to spend for daily life is what matters most to mortgage lenders.

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

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