It is important to have loan approval before you seriously start looking at buying a home. By all means do some research first so that you have an idea of what price, properties are selling at.

For many people financing of their new home is a confusing matter. They are asked many questions, asked to provide a great deal of information and often listen to lots of jargon which they don't understand.

The two main areas lenders look at are:

1. Do you have a sufficient deposit?
2. Can you repay the loan back without difficulty and prove it.

Most of their information gathering relates back to those two areas.

After gaining information on proposed purchase price and how much you think you need to borrow the lender then usually completes a personal balance sheet listing what you own and their values and what you owe money on. Why do they want all that you ask? Is it because they are snoopy?

The personal balance sheet provides valuable information to the lender. It provides an insight into what assets you have managed to buy in the past and also whether you have any savings. It also shows what you owe to other lenders. This assists them in assessing your ability to handle money and helps them to answer questions 1 & 2.

The age of the borrower also comes into it when lenders peruse the personal balance sheet. What they expect a 25 year old to have in assets is different to a 40 year old. People often struggle to accurately fill out the personal balance sheet at the interview as they are thinking about so many different things. Therefore fill out our personal balance sheet and take it with you. This will allow more time for both parties to gain information.

Ability to repay is all important and lenders have their own ways to determine whether they believe you can afford it. Remember what they say you can afford and what you can actually afford may be different.

In some cases what the amount lenders say you can afford is much greater than you can actually afford.  Everyone has different living standards and circumstances. Given the prospect of higher interest rates and therefore higher loan repayments, all borrowers should work out what they can afford with a clear margin for unexpected expenses. 

If you are not sure what you can afford have a look at our budgeting section. If you are not comfortable with the proposed loan repayments then you are most likely over your head. Look at a reduced loan amount.  

In other cases the lender is saying you can only afford so much when you believe you can afford to repay more. You need to do your homework to demonstrate why you can afford a bigger loan. It could be you have lower than normal living expenses. This may be demonstrated in a strong personal balance sheet for your age. In some cases this may not help you because money has been spent travelling, studying or another valid reason. Lenders have systems in place to approve loans outside normal guidelines. If you are in this situation consider their reasons and be prepared to point out reasons why you can afford it.

If you have been approved finance it usually allows you to pay a certain price for a property and borrow a certain amount. If you have found a property you like, start negotiating (read our buying a house section). If after agreeing on a price and being satisfied with the building condition that it is structurally sound and has no termites or other problems etc then you can sign the contract. Sign the contract subject to finance with the name of the lender who approved the loan noted on the contract. This is important as you still have a cooling off period and need your lender to approve the loan based on known purchase price and loan amounts.

The process from here on confuses people but it shouldn't. The lender and your Solicitor/Conveyancor do the work. The lender prepares loan and mortgage documents and writes to the Solicitor. Your Solicitor contacts the legal firm acting on behalf of the vendor (seller) to inform them they are acting on your behalf. Your Solicitor checks things like the title, rates notice and planning notice to make sure everything is okay. Your main role is to make sure the lender has documents to you at least two weeks prior to settlement. Make sure you sign and return these documents right away. At this time also contact your Solicitor to see if everything is going smoothly and that settlement is expected to take place on time. Some Solicitors firms have large numbers of settlements to arrange all at different stages. With staff changes or holidays sometimes the process isn't as smooth as it should be. This may also be true of your lender with your loan being handled by different sections during the process from application to settlement.

Settlement often happens in the Bank's settlement department. There is no need to attend as it should take no more than 5 minutes.  It is more important to know when settlement has happened, and if so how you can obtain the keys to your home!

After settlement your lender will lodge the transfer and other documents at the titles and stamps office to transfer the title into your name, with the lender showing on the title as having a mortgage over the property. The stamp duty and titles office fees will usually be charged over the following 2-3 weeks however it is not unusual for this to take 2 months! Whatever you do, don't assume the money has gone out of your account until you have seen in writing the amounts being deducted. Your lender and or Solicitor should have told you the exact amount that you will be charged.

The only other thing to do is repay the loan!