The Home Loan Process in 2019
The home loan process can be a daunting task for consumers, and the ever-changing goalposts the finance industry faces is making the process more and more difficult for Mortgage Brokers and lenders alike.
Being in the industry for more than 10 years and living through what used to be a complex but reasonably straight forward industry has really had some significant changes to the process. The introduction of heavily compliant focused processes, as well as in-depth living expense verification, has increased turnaround times and percentage of applications being approved.
Earlier in my career, turnaround times and even credit policies were a walk in the park. There was no compliance, no living expense verification and properties were about a third of the price they are now. The levels of applications submitted were also about half what they are today. Fast forward ten years and everything is quite the opposite.
I am going to go through the general home loan application process and provide a reasonable outlook on the anticipated time it takes to get a loan approved.
Preliminary Assessment & Pre-Approval Application
During the pre-assessment stage, we will calculate how much you can borrow. We will inform you of possible questions that may arise from lenders and eliminate the lenders that may not provide the funds required or accept the circumstances that we are working toward.
Depending on which lender we proceed with, the process of ascertaining a pre-approval can be instantaneous with some lenders issuing a system generated pre-approval, whereas most lenders will fully assess pre-approvals like a formal application to ensure income verification and provide customers with more certainty on their home loan application. The time will vary anywhere between two business days and up to ten business days depending on the lender.
The standard documents that are required for all full document home loans are as follows;
– 2 most recent payslips with a most recent group certificate for PayG applicants
– 2 full years financials including all personal, trust and company returns with matching notice of assessments for all self-employed applicants
– 3 months statement history of salary account to confirm living expenses and to establish any undisclosed liabilities
– Drivers Licences
– Medicare Card
– Confirmation of funds to complete the purchase
Once the lender has all the relevant information and documents, they will assess whether you meet their home loan requirements. If you qualify, they can issue a pre-approval for your loan.
Most pre-approvals have a 90-day validity.
If you have started your property search, a pre-approved loan can be beneficial. A home loan pre-approval provides you with a maximum purchase price and also provides you with peace of mind that you are considering properties that you can afford, and you can move quickly to make an offer.
It may just put you in a stronger negotiating position than other potential buyers who don’t have pre-approval.
Making Offers and Signing A Contract Of Sale
Whether you are purchasing at an auction or making an offer on a private listing, the agreement only becomes legal when both parties have signed a Contract of Sale (Offer of Acceptance in WA).
This contract will identify the purchase price as well as any special conditions. If you are making offers of private listings, you will generally have a subject to finance clause which provides a period; usually, 10 business days, to ascertain finance. If your finance is not successful, any deposit is returned to you, and you face no legal repercussions.
I suggest that all purchasers request a subject to finance clause even when a pre-approval is held to cover any potential issues that may not be experienced even with the valuation of the property. If you purchase at auction, you are buying the property unconditionally, meaning that you have no cooling off period and if you are unable to ascertain finance, could end up losing your deposit and being sued for the balance of the outstanding amount. You may also choose a building inspection report or pest inspection.
A valuation will need to be completed on the property to confirm it is acceptable by the lender. This part of the process can take up to five days to be completed as long as there are no issues experienced in booking the valuation and accessing the property. In some instances, a full valuation is not required where the lender will accept the purchase price and is generally on properties that fall within the average prices of the suburb and the overall lending is 80% and under.
There may be other outstanding documents that are required for formal approval and are generally outlined in the pre-approval letter provided by the lender.
Once all documents have been verified, and all requirements met, the lender will issue a formal approval. Letter of offer documents will be sent by the lender’s solicitors, which will then be onforwarded to the customer to be completed and returned.
Once these documents have been completed and returned, the lender will certify them and confirm they are ready to settle the application.
The time to have a home loan application approved has increased due to the lenders having to perform more checks and be more thorough in their assessments. Presently, without requesting escalations on files, turnaround times are generally sitting at approximately eight to ten working days from submission to settlement.
Depending on the circumstances and timeline required for settlement, escalations can be requested, and the turnaround time can reduce but will depend on so many factors, especially on the lender of choice.
I will always advise the expected turnaround time will take up to two weeks just to provide customers with realistic expectations, so there is no false hope. Obviously, if a response is received back within the first week, then expectations are more than fulfilled, and all parties are happy.
If you would like to discuss any of the above in detail or have any questions that I can answer, please get in touch through PropertyInvestingFinance.com, or for more urgent help, you can give us a call on 1300 992 260.