With the changes in the lending requirements, your lender is asking for more documents for home loan applications and so is your broker. Here is what you should know.
We all have only 24 hours a day and there are so many things needs to be done. On top of that, applying for a home loan that requires a lot of paperwork. Borrowers often asked – “Why does applying for a loan require so much paperwork?” Well, the answer can be as simple as to see how good you are financially to get a loan!
In fact, going straight to the bank will not change the process. They will also ask the same documentations as your mortgage broker does.
From the regulatory point of view-
The National Consumer Credit Protection Act 2009 (National Credit Act) requires all credit licensees must adhere to the responsible lending conduct obligations. This obligation is applicable for both the credit providers and credit assistance providers such as mortgage and finance brokers.
Responsible lending is to ensure that the credit contract is “Not Unsuitable” for the consumer. This has further been explained in the following three steps:
- Make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
- Take reasonable steps to verify the consumer’s financial situation;
- Make a preliminary assessment or final assessment about whether the credit contract is ‘not unsuitable’ for the consumer
So, the purpose of all the documents is to get a clear idea and verify your financial situation. Also to ensure your home loan repayment’s affordability. The key objective is not to bring financial hardship to the borrower because of the proposed home loan.
Perks of relevant documents for home loan-
Providing documents upfront helps the mortgage broker to find suitable products based on your circumstances. For example, if you have sufficient savings available, your mortgage broker may suggest going for an offset feature. Without the full information upfront, it is very difficult to recommend a suitable home loan product. This might cost you in dollars and your broker in terms of time and effort.
The relevant disclosure of your circumstance may also help to structure your home loan application as per the credit policy. For example, if you have any credit impairment history, share with your mortgage broker upfront. Your mortgage broker will look for the products and lenders that may allow such impairment. Alternatively, as a self-employed, you may not aware of your borrowing capacity. A mortgage broker can help to work out on the scenarios and find suitable deals.
If you do not disclose any relevant information and if the lender finds out at the later stage. It might negatively impact your ability to get finance and results in serious implications. Therefore, it is always wise, to be honest, and disclose fully in your loan application.
The question may arise what is the relevant information? Any information that may affect your financial capacity now and in the future is relevant. Mostly the lenders try to work out the financial scenario from the relevant and up-to-date documents.
For example, to verify your income, most of the lenders require to provide at-least one payslip showing YTD of a minimum of 3 months’ continuous employment and or annual salary. Some lenders may ask only to provide one month’s statement of salary transaction accounts. For self-employed, most recent tax returns and or financial statements for all the borrowers.
Here are some of the common documents that you may need to provide while applying for home loan:
- Proof of Identification- Any of your photo ids such as driver’s license, passport, birth certificate, citizenship certificate or Centrelink pension card etc.
- Proof of Income and Employment – Latest payslips and or latest tax returns; any existing signed lease agreement or bank statements for rental income.
- Proof of Savings and assets – Latest 3 months bank statements for proof of genuine savings. Recent evidence of your assets such as savings, term deposits, shares etc.
- Current debts and expenses- Latest billing statements and or credit card statements and or transaction account statements and other loans statements.
- For refinance – Latest 3 months loan statements from your existing lender.
At the later stage before finalising the loan –
- For purchasing property – Signed contract of sale.
- For construction loan – Council approved building plans, specifications or building permit and fixed price builders contract.
Remember, due to strict lending requirements the number of documents for a home loan or refinance may vary from lender to lender and case by case.
It is wise to share as many documents as you can at-least with the mortgage broker to get a clear idea about your financial scenario.
How to optimise time for paperwork-
Collecting documents certainly requires time. Time is one key factor particularly for the borrowers who are looking for a quickly approved loan. Even with the urge of urgency, we suggest to plan.
Purchasing your dream home cannot be an overnight decision. Do your own maths beforehand and get the documents ready. Providing all the documents in one go can save a good amount of time and can get you a quick approval.
For many time-poor individuals, the process of arranging all the documents may be overwhelming and time-consuming. Therefore, here are few tips –
- Talk to an expert first if you do not know what documents you need for a home loan or refinance. We can provide you a free consultation and free home loan documents checklist.
- Set aside time with no distractions. Usually, with a simple home loan scenario, you may need an hour or two to locate and collect all the required documents. With the blessings of technology, most of the documents are just click away. If you are not a tech-savvy, this no distraction time will genuinely help to figure it out all.
- If you have a co-borrower, divide and delegate the tasks to each of the applicants.
- Aim to provide all up-to-date documents in one go to minimise hassle and reduce processing time.
Remember, a home loan is a long-term commitment, which you need to carry. Neither the bank nor the broker wants you to put into such hardship that may cause failure to repay.
This documentation is not only for the lenders or the regulators but also for you to understand your financial scenario. It will help you to design your future objectives and obligations too. For example, your income is well enough to get a million-dollar loan but you never worked out on your on-going expenses. By taking the time to collect all the relevant documents helps in many ways. It can set a path towards a planned financial life and overall well-being.
How we can help-
We are experts in mortgage and finance broking. Our industry experts can help you to find and appropriately structure your home loan and support throughout the whole process. We will work out on your financial scenario and loan objective and find suitable home loan products.
Book a free appointment with our home loan expert to discuss your loan objective and find out how we can help.