When you apply for a home loan, your primary concern is likely to be around the maximum amount you can borrow. Due to the inherent risk that borrowing a significant amount of money places on both parties, the lender wants to make sure they know who they're dealing with and get a good handle on your financial situation before they decide to loan you money.
To make this happen, they'll ask for a bunch of documents to back up things like how much you earn, where you work, and where you stand financially. This is because you need to guarantee your ability to meet your monthly repayments throughout the duration of the mortgage term.
With all this in mind, the first stage of the home loan application process you’ll encounter is an affordability assessment.
Examining your income
Required documentation to prove your income will vary from lender to lender and may depend on the conditions of your employment, but if you’re full time employed, you may be asked to provide your two most recent, consecutive payslips, or a letter confirming the length of employment and how much you earn.
You may also need to provide proof of any supplementary income sources, such as part-time employment, child support, or benefits.
Individual and business tax returns/tax assessment notices for the most recent financial years
Balance sheet/profit and loss statements from the last two years
Business bank statements
Your most recent Assessment Notice
You’ll then need to document all your outgoings, as the lender will want to see that your existing outgoings aren’t excessive to the point that monthly mortgage payments would lead to financial strain.
Assessing your outgoings
Lenders will also ask you to provide information about your monthly expenses. Exact requirements may vary, but generally include council rates, utilities, mobile phone bills, and any active insurance policies.
Details about any existing credit card debts, personal loans, and car finance agreements, including outstanding balances, could be required, and lenders may even take into consideration childcare expenses, school fees, and any ongoing maintenance payments for children or former spouses.
Evaluating financial resilience
Remember, the purpose of an affordability assessment is to make sure you can comfortably maintain your mortgage payments should your circumstances change and you experience financial hardship. If you undergo a separation and switch to a single income, expand your family, or switch to part-time employment, your finances will likely be more stretched than they were beforehand, so lenders need to know you can still afford your home loan.
We know there’s plenty to think about, but you can get ahead of the curve and streamline the home loan application process by preparing all the necessary documents ahead of your mortgage appointment.
If you’re thinking of applying for a mortgage, or have any questions about your upcoming appointment, please don't hesitate to reach out to our friendly team of mortgage brokers.