The loan process demystified

We know that your first steps in property can feel a little daunting. It’s all strange the first time; the complex technical terms, the large financial outlays and the feeling that if you make one little mistake, the roof will come crashing down on your head. 

So, to put your mind at ease, we’ve laid out the loan process for you in straightforward, easy to understand terms to help you cruise through it all like a pro, including the terminology surrounding the process, the steps involved in getting a loan and the various types of approval.

Firstly, have a chat with your broker

It all starts with talking to your broker. Here you’ll both nut out your goals, your current financial position and find out your borrowing power in order to narrow down the kinds of loans you broker will be looking for on your behalf.

Understand what’s possible

You’ll hear back from your broker within a few days of that chat and they will have a bunch of loan options for you to compare. After you choose one, they will then get to work, preparing and submitting your loan application to your chosen lender.

Getting the go-ahead (pre-approval)

If all goes well, within a few days you’ll get the green light to borrow a set amount for a set time (usually valid for three months). This is known as a pre-approval, which is an indication that your lender is willing to approve your loan when you lodge a full application.

This gives you a clear idea of what you can spend - and everything you need to make an offer on a property.

Let’s make it official (formal approval)

Also known as unconditional approval, this is when the lender has everything they need and confirms in writing that they are willing to lend you the money.

Now all that’s left is the paperwork – and your broker will sort all that out. During this part of the process, your property will be accepted by the bank, the details of your valuation and insurance will be provided and a settlement day will be scheduled.

Settlement - the big day

Get ready to pop the champagne – your property is almost yours. In this final stage, your broker will organise settlement with your solicitor and the lender, as per the date on the contract of sale.

And then you get the keys ..... Yep, it’s celebration time!

Key terms explained

Finally, a brief look at a few of the most common terms relating to the home loan process;

  • Variable rate – an interest rate that goes up or down usually in line with the official interest rate set by the Reserve Bank. Although some Lenders raise interest rates not in with the Reserve Bank of Australia.
  • Fixed rate – This is the opposite of a variable rate loan. Your interest rate and repayments stay the same, no matter what. No surprises.
  • Equity - the difference between the value of your home and the amount you owe on it (an amount which can be borrowed against).
  • Stamp duty – a state government charge on the transfer of property, the amount of which varies from state to state.
  • Offset account – This allows you to keep money in an account attached to your home loan. The money in it offsets what you owe on the loan. You need to make sure the account includes a redraw facility so you can still access the money if you need to.
  • Redraw facility - This allows you to make extra payments whenever you want, but also take the extra out if you find yourself in a pickle and need cash urgently.
  • Split loan - You’re able to fix part of your loan, and leave the rest variable. It’s like the best of both worlds.

Need more information?

For more helpful tips on the process of buying your first home, feel free to explore our website at Loan Market, or give us a call on 13 56 26. You can also find info on a range of related topics by visiting the Loan Market help page.