The other day I read an article of a young man who lost his $41,000 deposit after a bank cancelled his loan. My first reaction was, “How can this happen!” We are living in a society of many options and lots of information. Let’s make sure this doesn’t happen to you! Very simply, I’d like to go through what people can expect going through the lending process so they can undergo the process with confidence and diligence.
When you go through a mortgage broker you have an option of a number of different lenders including banks. This instantly creates an environment where you can compare various lenders, their rates and mortgage terms. Using a mortgage broker also gives you someone to discuss your needs and requirements. You may have a bad credit history or a small deposit and its situations like this that a mortgage broker will consider and make recommendations.
Once you’ve had a lengthy discussion with your broker and narrowed down your needs you will need to fill in a loan application for a pre-approval. The application is designed to provide information about your borrowing capacity. Personal information will be asked such as your assets and liabilities and other financial obligations. You will also be asked to verify your income and savings so you will need to produce payslips and statements. Once you’ve got a pre-approval you will know exactly how much money you have to spend towards your new home.
After considerable research and many open for inspections you find your new home and make an offer to the real estate agent. The real estate agent asks you to sign a contract and leave a deposit. It’s important to know at this stage that you can negotiate the terms of the sales contract. Before you sign on the dotted line send a copy of the sales contract to your solicitor and mortgage broker. They will discuss the contract with you and make sure it meets your needs and the loan terms. The loan terms may state the finance is subject to conditions such as a formal valuation of the property in question. This process will give you an opportunity to discuss how long settlement should be and also make sure the terms of the contract state the offer is ‘subject to finance’.
Always take into consideration other fees involved in the purchase of your home such as conveyancing/solicitor fees which can be approximately $1,000; adjustments in rates and generally the biggest cost of all is stamp duty!
So what happens if your loan gets declined? There are a number of reasons loans get declined; you may have a small deposit or irregular income, poor credit history or not enough income to pay the loan. A mortgage broker will give you a range of options to match your scenario to a suitable lender. It may be a matter of time before you get into your home; rectifying your financial situation so you can get a loan approval may only take a number of months if a lender would like to see further savings. Other situations may take a little longer and it’s worth discussing a plan with a financial planner to help you reach your goals.
Best scenario – your conveyancer/solicitor and the lender have gone through the contract of sale and suitable amendments have been made and approved by the vendor. You pay your deposit which is usually 5-10% and the sales contract is signed. Settlement comes along and you are ready to move into your new home. What happens on settlement day? All the paperwork is signed and your conveyancer/solicitor, lender and seller’s representative meet and the property title, contracts and cheques are exchanged. Documents are then sent to the Titles office to register you as the new owner. Congratulations! You are now the proud owner of your new house.
Buying a home is a big decision and a very exciting one. As mortgage brokers we encourage your questions and aim to match a lender to your individual scenario; all along seeing you through the entire purchase process. Let’s have a chat and start opening doors. Secure your future. DFG Wealth (03) 5976 8426