What you need to qualify for an investment property home loan in Australia

Do you know if you are ready to apply for that mortgage?

Its ok if you don’t – We’ll provide everything you need to know about qualifying for a home loan!

Ready to buy your own home or investment property? It pays to be prepared and know exactly what you need to secure a home loan before you start looking at properties.
Qualifying for a home loan involves more than filling in a form online and hoping for the best! It’s important to thoroughly understand your financial situation and any benefits you can take advantage of as an ADF member before you start.

In this blog post we’ll walk you through everything you need to know about qualifying for a home loan so you can start building wealth through property investment for a brighter future.

The Capital Properties team are experts in property investment and it’s our mission to help you make the most of Australian property investment opportunities to secure your financial future.

Our free Capital Properties Discovery Session is designed to take the guesswork out of loan applications and the process of buying your property, whether it’s your first home or an investment property. We’ll make sure you get the best deal.

On the go? Here’s 30 seconds of take outs:

  • The first step of applying for a home loan is saving your deposit and knowing exactly where you’re at financially.
  • The Capital Properties Online Budget Planner can help you assess your current financial situation.
  • Many ADF members are eligible for financial benefits to help them purchase a home.
  • Getting pre-approval means you’ll know your borrowing capacity and makes it easier to negotiate with sellers.
  • To qualify for a home loan, you’ll need:

– proof of identity, proof of income, savings and assets, liabilities, living expenses, credit history, details of grants or exemptions, employment records & property details.

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Are you ready to apply for a home loan?

Before we discuss the documentation that you’ll need to apply for a home loan, you‘ll first have to examine your financial situation and make sure you’re in a position to comfortably service the loan. At Capital Properties we have many tools to assist you with this process such as the Capital Properties Online Budget Planner as well as many more online investor resources.

However, the most efficient way to check if you’re ready to invest, is to attend our FREE Discovery Session. During the session we’ll help you determine your long-term financial goals, complete a spending budget, an asset & liability worksheet, and more, to find out exactly where you are financially.

The first step of applying for a home loan – saving your deposit

One of the first steps towards qualifying for a home loan is saving for a deposit. Generally, we recommend a minimum deposit of 10% of the property’s purchase price. Many lenders prefer to see a deposit of 20% which then negates the need for Lender’s Mortgage Insurance (LMI) and often results in a lower interest rate for the home loan.

For some ADF members, this might seem like a daunting task, but with diligent financial planning and our expert guidance, it is achievable. And as Defence Force members there are some financial benefits that you can take advantage of to get you on your way. We’ve discussed these in more depth in our blog post: “Buying a house while in the Defence Force.” But here’s a quick summary of some of these ADF benefits:

ADF financial benefits:

As an ADF member, you may be eligible for various financial benefits that can assist you in purchasing your home:

  • Home Purchase Assistance Scheme (HPAS): This scheme provides eligible ADF members with a lump sum of money to put towards purchasing a home.
  • Home Purchase or Sale Expenses Allowance (HPSEA): HPSEA helps cover the costs associated with buying or selling a home, such as legal fees and stamp duty.

Defence Home Ownership Assistance Scheme (DHOAS): DHOAS offers subsidies on home loans for current and former ADF members, helping to reduce mortgage repayments and build equity faster.

Sort out Pre-approval

Once you’re sure of where you stand financially, we strongly recommend that you obtain pre-approval for your home loan before you start house hunting. Pre-approval gives you a clear understanding of your borrowing capacity, making it easier to set a realistic budget and negotiate with sellers. At Capital Properties, we can assist you in navigating the pre-approval process, ensuring a smooth and stress-free experience. Our blog post “Why being finance ready pays dividends” elaborates on why pre-approval is crucial.

Qualifying for a home loan

When you’re confident that you’re ready to buy, it’s time to look at what you need to qualify for a home loan. Let’s look at the specific eligibility requirements and documentation you’ll need to apply for a mortgage:

Proof of identity

The lender will need to confirm that you are who you say you are, therefore, they’ll need at least one primary identify document (ID) or two secondary IDs. Here are some common documents you can use:

  • Primary ID: Passport, Australian driver licence or Australian learner permit.
  • Secondary ID: Australian birth certificate, Australian citizenship certificate, Medicare card or recent ATO assessment notice.

Proof of income

Lenders will want to see evidence of your income, which includes pay slips, tax returns, ATO notice of assessment, employment contracts and a minimum of 3 months of bank account statements. This helps them assess your ability to make regular mortgage repayments. Your proof of income also includes any other sources of income, such as:

  • Superannuation
  • Share dividends
  • Foreign income

Rental income (you’ll also need to present a copy of your current lease agreement and a statement from the property manager/real estate agent).

Savings and assets:

Lenders will generally ask for evidence of your savings and assets to make sure you have sufficient funds for a deposit and to cover additional costs associated with purchasing a property. They’ll look at your bank statements, savings account balances, and information about any investments or other assets you may have such as your superannuation, outright-owned vehicles and shares.

Liabilities:

The bank or lender will also need to assess your liabilities, or debts, such as credit cards, personal loans or vehicle loans.

Living expenses:

You’ll need to provide a breakdown of your monthly living expenses to help the lender determine your borrowing capacity and to make sure you have enough to cover your mortgage without defaulting. This includes regular expenses such as rent, utilities, groceries, clothing and personal care, insurance, phone, internet, TV as well as other discretionary spending.

Credit history:

The bank or lender will also need to assess your liabilities, or debts, such as credit cards, personal loans or vehicle loans.

Living expenses:

You’ll need to provide a breakdown of your monthly living expenses to help the lender determine your borrowing capacity and to make sure you have enough to cover your mortgage without defaulting. This includes regular expenses such as rent, utilities, groceries, clothing and personal care, insurance, phone, internet, TV as well as other discretionary spending.

Credit history:

Your credit history plays a significant role in determining your eligibility for a home loan. Lenders will review your credit report to evaluate any outstanding debts or missed payments. Generally speaking, the higher your credit score, the better your chances are of scoring home loan approval.

Details of grants or exemptions:

You should provide the lender with details of any grants or exemptions you’re eligible for, such as the VIC Shared equity scheme,  or the Regional Home Guarantee-5% deposit scheme.

Employment stability:

Lenders love to lend to people who can demonstrate stable employment conditions. Being employed full-time for a year or more is considered ideal. You’ll need a copy of your employment contract along with confirmation of your basic pay and any allowances for exercises and deployments.

Self-employed individuals must show 2 years of tax returns, Australian Taxation Office (ATO) assessments and the last 2 consecutive years’ profit and loss from their business. If you receive a government income, they’ll need to see a letter from Centrelink confirming your benefits.

Property details:

As part of the home loan application process, you’ll need to provide details about the property you intend to purchase. The lender will ask for the sale contract, any building inspection reports as well as your solicitor or conveyancer’s name and contact details. Or, if you’re building, they may ask to see the formal building tender with plans and specifications.

To learn what happens once you’ve submitted all of these documents, check out our blog post “The finance process for the Defence Force Property Investor”.

Believe us when we tell you that organising all the necessary documentation upfront makes the home loan application process much more straightforward. It’s a highly frustrating scenario if you’re waiting to move on a property and facing delays because the bank can’t process your application quickly because they weren’t given the information they need.

At Capital Properties, we can guide you through this process step-by-step. We’ll make sure you’re making the right investment decision for you, help you gather the required documents and navigate any challenges that might arise along the way. Contact us today to learn more about how we can help you qualify for a home loan and invest in your future through property ownership, or book your FREE Discovery Session ASAP.