What to Do Before Applying for a Home Loan
Before you fill out a home loan application, there are a number of steps you can take to strengthen your position as a borrower. As a mortgage broker, I want to help you understand what lenders look for and how you can prepare yourself. I’m not offering financial advice, but I can share general information and observations from the market so you can be better prepared.
Sort Out Your Finances and Budget
The first thing you’ll want to do is understand your financial picture thoroughly. Know your income, expenses, assets, and liabilities. Create a budget that accounts for existing debts, credit card use, and recurring costs like subscriptions. Lenders assess what you can afford through “serviceability” tests, this essentially means whether you can meet repayments without hardship.
Pay down high-interest debt. Reducing outstanding balances on credit cards, personal loans or car loans can improve your debt-to-income ratio and strengthen your application. Also avoid taking on new loans or opening new lines of credit before you apply. Many brokers warn against making major purchases or activating new credit cards in that lead-up period.
Keep a stable employment history if possible. Lenders often prefer to see consistent income over time rather than frequent job changes.
Save a Deposit and Understand Your Loan-to-Value Ratio (LVR)
You’ll generally need to save a deposit. In Australia, many lenders expect around 20 percent to avoid paying Lenders Mortgage Insurance (LMI). If your deposit is smaller, you may still be eligible under certain government guarantee schemes, but your options or costs may change.
Lenders look closely at your LVR, which is the loan amount divided by the property’s value expressed as a percentage. A lower LVR is usually seen as less risky. If your LVR is above 80 percent, you will typically incur LMI. It’s good to understand how that extra cost might affect your loan.
Check Your Credit History
Before you apply, order a copy of your credit report from one or more of Australia’s credit reporting agencies. Look for any inaccuracies, defaults, or anomalies such as debts you already paid. If you find something that looks incorrect, lodge a dispute. Having clean and well-maintained credit history gives lenders confidence in your reliability.
Make sure all bills, credit card payments, and loan repayments have been on time. Late payments can have a significant impact on your credit score and lender perceptions.
Research and Compare Home Loan Options
Don’t just jump into the first loan you see. Explore different lenders including major banks, non-bank lenders, and credit unions. Look at interest rates, but also look at features: offset accounts, redraw facilities, ability to make extra repayments, and any fees.
Each lender’s policies differ in how they assess risk, allowable income, acceptable types of property, and the features they permit. Being aware of the differences will help you and your broker (that could be me) match you to suitable lenders.
Gather Documentation
A large part of the delay in home loan processing comes from incomplete or inconsistent paperwork. Before applying, assemble these:
Proof of identity (driver licence, passport, other identity documents)
Evidence of income (payslips, tax returns, statements if self-employed)
Bank statements (often 3 to 6 months)
Details of assets (vehicles, investments, savings)
Details of liabilities (existing loans, credit cards, other obligations)
Evidence of deposit funds (proof that the deposit is genuinely saved)
You’ll also need to satisfy what’s known as a “100 point check” to verify identity under Australian rules.
Avoid Risky Moves Before You Apply
There are several things people sometimes do unknowingly that hurt their lending chances. Avoid them:
Switching jobs just before applying
Making large purchases or spending down your savings
Applying for new credit (cards, car loans, buy now pay later)
Closing existing credit accounts (that can reduce your available credit and raise your credit utilisation ratio)
Co-signing for another person’s loan or becoming liable for others’ debts
These moves may raise red flags for lenders or affect your capacity to repay.
Consider Pre-Approval or Conditional Approval
Applying for pre-approval (or conditional approval) gives you a clearer idea of how much you might be able to borrow. It doesn’t commit you to a specific house or contract, but it helps you set realistic price limits when you search. As long as your financials remain consistent, many sellers will take an offer more seriously if backed by pre-approval.
Keep in mind conditions will apply, lenders will usually require confirmation of your income, valuation of the property, and other checks before final approval.
Conclusion
Preparing well before applying for a home loan can make the process smoother and increase your chances of getting favourable terms. By organising your finances, reducing debt, saving a deposit, checking credit history, comparing loan options, gathering documentation, and avoiding risky moves, you’ll stand in a much stronger position. The more you can present yourself as a stable and reliable borrower, the more lenders will take you seriously.
Get In Touch
Your home loan journey doesn’t have to be overwhelming.
Whether you’re ready to take the next step or just exploring your options, let’s have a chat.
