5 Things to Know Before Applying for a Home Loan

One of the most important things to do before buying a house is to check your credit score. It plays a major role in home loan approval by providing lenders with an overview of your financial status and reliability. A higher score can help you secure better interest rates and loan terms, while a lower score may limit your options or lead to higher borrowing costs.

Follow these steps to check and improve your credit score:

• Access your credit report for free from agencies like Equifax, Experian, or Illion
• Pay off outstanding debts and avoid late payments
• Reduce credit card balances and limit new credit applications

Before submitting your home loan application, take the time to review your credit history. Making improvements where necessary can enhance your chances of securing a more favourable house loan.

Borrowing power determines how much you can borrow based on factors such as income, expenses, debts, and credit history. Lenders use these details to assess affordability and set loan limits. You can calculate this yourself to have an overall idea of how much can be borrowed.

Here’s how you can calculate it:

• Use a home loan borrowing power calculator to estimate affordability
• Factor in your income, monthly expenses, and existing financial commitments
• Consider how changes in interest rates could impact repayments

Understanding borrowing capacity helps you set realistic expectations when searching for home loans in Australia.

Not all home loans are the same, and choosing the right one can save you thousands in the long run. The two main types are:

• Fixed-rate home loans

  These offer consistent repayments for a set period while protecting against interest rate fluctuations.

• Variable-rate home loans

  Rates can change over time, so these products provide more flexibility but with a potential cost increase.

When choosing between home loan options, also consider these additional features:

• Offset accounts

  Some loans come with an attached savings account that reduces interest, helping you save money in the long run.

• Redraw facilities

  If you make extra repayments, some lenders let you withdraw these funds later, offering flexibility if your financial situation changes.

• Repayment flexibility

  Some creditors allow extra repayments without penalties, while others may charge fees. Check if the loan lets you pay it off faster or switch loan types without extra costs.

Comparing such options helps you choose a mortgage loan that aligns with your financial goals.

A solid deposit is essential when buying a home. Our experts recommend a house deposit of at least 20% or more of the property’s value. By setting your goals early and adopting good financial habits, reaching this amount is easy.

Here’s a quick look at the minimum deposit requirements in Australia:

• Most lenders require at least 10-20% of the property price
• Some lenders offer loans with a 5% deposit, but this often comes with Lender’s Mortgage Insurance (LMI)

However, these are not the only costs to consider. You also need to set a budget for:

• Stamp Duty

  Varies by state and property value.

• Legal and Conveyancing Fees

  Essential for property transactions.

• Building and Pest Inspections

  Recommended to avoid costly surprises.

• Loan Establishment Fees

  Some lenders charge upfront fees for processing the home loan application.

Planning and using a home loan calculator can help estimate the total amount needed before committing to a purchase.

Obtaining home loan pre-approval gives you a clear idea of your borrowing power. It also strengthens your position when making an offer on a property.

The benefits of pre-approval include:

• Helps you set a realistic property budget
• Shows sellers and real estate agents that you’re a serious buyer
• Speeds up the formal loan approval process

To apply for pre-approval, here’s what you can do:

• Submit financial documents, including income proof, expenses, and credit history
• Choose a lender and complete the pre-approval application
• Receive an indication of how much you can borrow

Pre-approval is a valuable step when searching for your dream home, giving you confidence during negotiations.