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How to get a home loan in Australia: Our step by step guide

A young family with a toddler speaking to a real estate agent.

Buying a home is a huge financial commitment, and it can feel a little overwhelming if you’re not sure where to start. In our dedicated guide, we’re outlining all the steps for getting a home loan in Australia, and the factors you should consider along the way.

Step 1: Calculate your borrowing power and get serious about saving

The first step to getting a home loan is to understand your borrowing power. Your borrowing power is how much money can be lended to you based on your income, debts, spending and other factors.

Every lender has different ways of calculating borrowing power, and some might be more risk-averse than others. However, you can get a rough idea using Mozo’s free home loan borrowing calculator.

Understanding how much money you might be able to borrow is crucial because it can be an indication of what type of properties you can afford. Keep in mind that most lenders will require your home loan deposit to be at least 20% of the property’s purchase price.

Ideally you’ll have already started saving up for your home loan deposit, but this is the time to buckle down and get serious about saving. On top of your deposit, you might also need to pay for stamp duty, an application fee, a property valuation fee and other costs.

Other things to do:

  • Check your credit report: Request your credit report from different credit agencies such as Equifax, Experian and Illion to make sure they are free of errors. If you have any outstanding debts, you can work to improve your credit score.
  • See if you’re eligible for a home loan grant: There are a number of government home loan grants and schemes available, the majority of which are for first home buyers. Some government grants allow eligible buyers to purchase with a deposit as little as 2%.

Step 2: Compare home loans and find the right type for you

The next step is to compare home loans and look for a competitive interest rate. A home loan is a large debt that you could have for up to 30 years, and a good interest rate can save you thousands of dollars over the loan’s term.

When you compare home loans, some factors to consider are:

  • Interest rate and comparison rate: The interest rate indicates how much interest you’ll be charged for borrowing money, while the comparison rate indicates the ‘true’ cost of the home loan, by combining the interest rate with certain fees you’ll be charged.
  • Fixed, variable or split rate: A fixed interest rate remains the same until the fixed period ends, while a variable interest rate can increase and decrease over time. A split rate home loan allows you to combine the two methods. You can learn more about fixed vs variable home loans.
  • Principal and interest or interest only: The principal is the amount you borrow. A principal and interest loan (P&I) means you make repayments on the amount you owe in addition to interest, while an interest only loan (IO) means your repayments are only interest for a set period.
  • Length of the home loan: Lenders will typically offer home loans with a term between 20 and 30 years.
  • Additional features: Features such as an offset account or a redraw facility can be useful tools to have as part of your home loan, though you can be charged higher fees as a result.

Once you’ve done some research and compared home loans, you might be ready to move onto the next stage by lodging an application with your chosen lender. If you’re still not quite sure which home loan to apply for, you might want to speak to a mortgage broker.

Step 3: Get home loan pre-approval

After choosing which lender you’d like to go with, it’s time to apply for home loan pre-approval – sometimes referred to as conditional pre-approval.

During this process, the lender will assess your finances and determine how much money it’s willing to let you borrow (in principal).

It’s important to note that home loan pre-approval is not the same as full or unconditional approval – it does not guarantee you will be approved for a home loan. Instead, it helps you understand what type of properties you can afford, so you can go house hunting with some degree of confidence.

Home loan pre-approval will usually last between 3 to 6 months, so it’s a step you want to take once you’re ready to buy. If you don’t find a home you want, you can always apply again. We have a guide to which documents you need to get home loan pre-approval if you need it.

Step 4: Make a home loan application

When you find the home you want and your offer to buy is accepted, it’s time to exchange contracts of sale, pay the deposit and arrange formal approval from your home loan lender.

The contract of sale will specify the deposit amount and when it needs to be paid by. It’s strongly recommended you arrange for a conveyancer or solicitor to assist with reading over the contract and any other legal documentation before signing.

Note that if you’re buying a home at auction, you’ll need to sign the contract of sale and pay a deposit immediately. If you’re buying privately, there is a cooling-off period in most states and territories in Australia.

You may also want to organise an inspection of the property during this time – a building inspection and a pest inspection could both be important checks before signing off on your purchase.

You’ll next need to get your personal documentation in order as part of the official home loan application. Once you’ve contacted your lender to let it know you’re ready to buy, you’ll apply for a full home loan approval.

The lender will review your mortgage and property details, and then send you a home loan contract to sign. Once you’ve returned the contract, the lender transfers the loan payment to the seller.

Step 5: Complete home loan settlement

The final step in the process of getting a home loan is home loan settlement.

Your settlement date is the date when the sale is completed. The property title will officially be transferred to you and you’ll start repaying your home loan. The date will be included in the contract of sale, and it can come between 4-6 weeks after you first sign it.

You may also need to pay stamp duty after your settlement date, but the official time frame varies between states and territories. Some first home buyers may be able to avoid paying stamp duty if eligible for government home buying schemes.

Other things to do:

  • Consider home insurance: It’s not essential, but you might want to compare home and contents insurance policies after your home loan settlement – it can help cover the cost of repairs if your home is damaged.
  • Consider making extra repayments: Making extra repayments on your home loan means you’ll likely pay less interest over time. Make sure you have room in your budget to do this, and that there aren’t any penalties for doing so. We have a free extra home loan repayments calculator that can show you how much you could save.
Jasmine Gearie
Jasmine Gearie
Senior Money Writer

Jasmine joined Mozo from TechRadar Australia, where she covered the telco and NBN sector for over four years. She’s now turned her attention to the world of personal finance, with a special interest and expertise in home loans and savings accounts. Jasmine studied a Bachelor of Communication (Journalism and Public Relations).

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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