How To Get a Home Loan as a First Home Buyer?

Unless you have a large amount of money saved, you’ll likely need a home loan to make your purchase possible. The funds from the bank, combined with your own savings, go toward paying for your new property.

Banks have clear criteria about who they’ll lend to and how much they’re willing to offer, so it’s wise to apply for a loan early. Doing this ensures you understand your borrowing power before progressing too far.

What is a pre-approval?

Pre-approval, also known as conditional approval, gives you an estimate of how much you may be able to borrow based on your income, existing debts, and financial commitments. It might come with specific conditions, such as supplying further documents or completing a property valuation. Since lenders vary in how they define pre-approval, it’s important to check the exact meaning with the one you choose.

Getting pre-approval can help you set a clear budget and should be done early once you’re ready to buy a home. Keep in mind, though, that pre-approval doesn’t guarantee the lender will issue the final loan.

How to get a pre-approval?

Buyers can seek pre-approval from a lender through an online application, a phone call, or by visiting a branch in person. They may also choose to work with a mortgage broker or use a loan comparison platform to help simplify the process.

Pre-approval is not a guarantee, and if your financial situation or the lender’s criteria changes, the amount offered could be reduced or a loan might not be approved at all.

What do banks look for when applying for a pre-approval?

Loan Assessment Overview
When reviewing a loan application, lenders request specific information and evaluate your financial position to gauge the level of risk involved in lending you money.

They look at your income, savings, expenses, debts, and overall financial background to assess whether you’re eligible for a loan and, if so, determine how much they’re prepared to lend.

When it comes to final loan approval for a particular property, banks also evaluate the property’s value to ensure the loan-to-value ratio remains within a secure range.

Income and Expenses
Income includes your salary as well as any extra income such as business profits or investment returns. Expenses refer to regular spending like utilities, groceries, transport, and entertainment.

These figures help the bank determine if you can meet future repayments. They often calculate repayments at a rate two to three percentage points above the current rate to ensure affordability if rates rise.

Debt
Debt can include credit card balances, car loans, personal or business loans, and education-related loans like HECS-HELP. A higher debt load typically reduces how much you can borrow, so paying down balances and reducing credit card limits can improve your loan application.

Savings
Lenders want to see that you’ve saved enough for a deposit and that you have extra funds set aside to continue repayments in case of unexpected changes, such as job loss or higher living costs.

Financial History
Lenders assess your recent saving patterns, usually requiring evidence of consistent savings over at least three to six months.

They also check your credit report for past defaults or missed payments. These aren’t always deal-breakers if you can provide a clear explanation and show that the issue has been resolved.

How to get a loan if I'm self employed?

If you’re self-employed, a low doc home loan might be the most suitable choice. These loans are tailored for individuals who may not have standard documentation or employer-issued income verification.

However, they often come with a higher interest rate than traditional loan options. If you can demonstrate steady income and financial stability, you may still qualify for a standard mortgage with more favourable rates.

Unlike salaried employees, self-employed borrowers need to gather their own financial evidence. Before contacting lenders, calculate your earnings and organise the necessary paperwork to support your application.

Stating your income verbally isn’t enough, you’ll need solid proof. Compile documents such as bank statements, profit and loss reports, and declarations from your accountant to verify your financial position.

Be prepared to submit your two most recent personal tax returns. If there’s a large gap between the figures, keep in mind that lenders will usually base their decision on the lower amount. In this case, you should factor in any one-off expenses like training or equipment that may have impacted your reported income.