The loan process explained
As a mortgage broker it’s my job to make the loan process as smooth as possible for clients. While they usually don’t want to know what happens in the background, my business partners often ask “How does it all work?” So, here is the home loan process explained from a mortgage broker’s perspective.
Step 1: Understanding the client’s needs
I always spend some time in our first meeting to better understand the client’s current financial situation, what they would like to achieve from their next purchase and their longer term goals.
Step 2: Determine borrowing capacity
Usually clients have an idea of how much they want to spend before they see me. Often they’ve used an online calculator to get an estimate of how much they can borrow but they’re surprised with the different amounts and options we can offer.
My software enables me to assess a client’s borrowing capacity from over 1,000 products and more than 30 lenders. By inputting a variety of information I can sift through the offers available. Generally, the factors that determine a client’s borrowing capacity:
- credit card limits
- income and type of income (whether they’re casual, contract or full-time employees)
- the size of the loan compared to the property value
- number of dependents and their situation
- type of loan required
- living expenses
- their deposit and/or existing assets.
I take the client through how a loan amount will translate into ongoing repayments. Once we decide on a comfortable loan amount they’ll have an accurate figure to narrow their property search.
Step 3: Calculate the required deposit, loan and purchase costs
If they don’t have the ideal 20% deposit, which is common, I take them through the other options available to them. Accessing equity in other assets, guarantor options, mortgage insurance and grant eligibility are covered.
In addition to the deposit, I discuss other purchasing costs to help with budgeting and managing expectations, including:
- Loan application fees
- Valuation fees
- Stamp duty and other statutory government charges
- Conveyancing and legal fees
- Lenders Mortgage Insurance (LMI) if they’re borrowing more than 80% of the property value.
Step 4: Review suitable loan options
Once I understand the client’s needs, financial situation and goals I can take them through the most suitable loan products and we’ll compare their options. I’ll compare rates, features, fees and charges, and discuss the impacts of each with the client so we can determine what’s important to them.
Step 5: Apply for pre-approval
Once the right loan has been determined I’ll produce the paperwork for pre-approval. A formal pre-approval works the same way as a formal loan application, except without the security details. The lender assesses income, expenditure, assets and liabilities to confirm how much you can borrow.
As soon as the pre-approval is confirmed I advise the client so they can begin property hunting seriously and with confidence.
Step 6: Advice before making an offer
When a client finds a property they like I organise a valuation. If the property is to be auctioned, they’ll also need to arrange building and pest inspections at this stage. An auction will also require a deposit if their offer or bid is accepted so I advise clients to go prepared to cover at least 5-10% of the purchase price.
Before an offer is made I suggest they have their solicitor check the contract of sale for conditions and inclusions.
Step 7: Finalising the loan
When an offer is accepted I begin finalising the loan by packaging the application with supporting evidence and lodging it (usually online) with the chosen lender. The lender will assess the application and let me know if they need any additional information. I advise the client as soon as the application is unconditionally approved and arrange to meet or send a formal Letter of Offer for the client to sign.
Settlement is underway with the receipt of loan documents. I liaise with the client’s solicitor and lender who schedule the settlement date. The first loan repayment will usually be due one month after settlement.
During the settlement process I keep the client informed of progress. I also raise the matter of insurance, such as building and landlord protection, and if I’m working with an investor, suggest considering a property management service.
When the property has settled and is transferred into the client’s name I call to congratulate them and remind them of the date of their first loan repayment. It’s a great feeling every time I make that call.