When it comes to purchasing a home, obtaining a mortgage is often a necessary step for many Australians.
However, securing a mortgage requires a significant amount of documentation, as banks need to verify your financial status and ensure that you are capable of repaying the loan.
To make the process as seamless as possible, it is important to know what documents you will need to provide.
The specific documents that Australian banks require for a mortgage may vary depending on the lender and the type of mortgage being applied for, but generally, the following documents are typically required:
Proof of income
Each bank has different requirements for proof of income, so it is important to check what your lender requires. Some lenders may require three months of payslips, while others may require six months or more. You can usually find this information on the bank’s website or by speaking to a mortgage broker.
Your lender may have specific requirements for the format of your documents. For example, they may require that your payslips are in a certain format or that your bank statements show your full name and account details. Make sure you follow these requirements to avoid delays in the application process.
If you are self-employed, you may need to provide additional information such as business financial statements, a business plan, or proof of GST registration. If you receive income from investments, you may need to provide statements from your investment accounts.
Proof of identity
When applying for a mortgage loan in Australia, you will need to provide proof of your identity. Here are some documents that you can use:
Passport: A current and valid passport is a widely accepted form of identification.
Driver’s license: A current and valid Australian driver’s license can also be used as proof of identity.
Birth certificate: If you don’t have a passport or driver’s license, you can use your birth certificate as proof of identity.
Citizenship certificate: If you are not an Australian citizen, you can use your citizenship certificate to prove your identity.
Medicare card: Your Medicare card can also be used as proof of identity.
Utility bills: You can also provide a recent utility bill in your name as proof of your address. This could be a gas, electricity, or water bill.
When submitting your proof of identity, it’s important to make sure that the documents are current and valid, and that they match the information you provided on your mortgage loan application.
Proof of savings
You will need to provide bank statements for your savings account that cover at least the last three months. This will show the lender how much money you have in savings and how you’ve been managing your funds.
If you have money in a term deposit, you can also provide statements to show your savings.
If you have investments, such as shares or managed funds, you can provide statements to show the value of your investments.
You can also provide statements for your superannuation fund to show the lender your long-term savings and financial stability.
You should also ensure that your savings are enough to cover the deposit and other costs associated with the mortgage loan, such as stamp duty and legal fees.
Evidence of existing debts
Gather all the documents related to your existing debts, including loan statements, credit card statements, personal loan statements, and any other relevant documentation.
Obtain a copy of your credit report and review it carefully to ensure that all the information is correct. If you find any errors, you should take steps to correct them before you submit your mortgage application.
Calculate your debt-to-income ratio by dividing your monthly debt payments by your monthly income. This will give the lender an idea of how much of your income is already committed to paying off your existing debts.
Let’s say you earn an annual income of $60,000 before tax. You have the following debts:
Credit card balance: $5,000
Personal loan: $10,000
Car loan: $20,000
To calculate your debt-to-income ratio, you’ll need to add up your monthly debt payments and divide that by your gross monthly income (before tax).
First, let’s calculate your monthly debt payments:
Credit card payment: $200 (assuming a minimum payment of 4%)
Personal loan payment: $250
Car loan payment: $500
Total monthly debt payments = $200 + $250 + $500 = $950
Next, let’s calculate your gross monthly income:
Annual income = $60,000
Gross monthly income = $60,000 / 12 = $5,000
Finally, let’s calculate your debt-to-income ratio:
Debt-to-income ratio = Total monthly debt payments / Gross monthly income
Debt-to-income ratio = $950 / $5,000
Debt-to-income ratio = 0.19 or 19%
In this example, your debt-to-income ratio is 19%. This means that your total monthly debt payments are 19% of your gross monthly income. In Australia, most lenders prefer a debt-to-income ratio of 6 or less, so you may need to reduce your debt or increase your income in order to qualify for a loan.
Make sure you include all of your debts, even those that may not appear on your credit report, such as loans from family members or friends.
Along with your statements, provide any other documentation that can help explain your debts, such as letters from creditors or proof of payments.
If there is any unusual activity on your statements, such as a large one-time purchase or a missed payment, be prepared to explain it to the lender.
It is important to be honest and transparent about your debts. Trying to hide or downplay your debts can harm your chances of getting approved for a mortgage.
Employment history
This may include previous employers and positions held, particularly if you have not been with your current employer for a long time.
Before you start preparing your employment history, make sure you have all the necessary documentation. This may include your resume, payslips, tax returns, and letters of employment.
Your employment history should include a comprehensive list of your previous employers, the dates you worked for each employer, your job title, and your salary. Be sure to include any gaps in employment and explain the reason for those gaps (e.g. taking time off to travel, being laid off, etc.).
In addition to your regular employment, you may also have additional sources of income, such as rental income, investments, or a second job. Be sure to include all sources of income in your employment history.
Lenders are looking for borrowers who have a stable employment history, as this indicates that you have a reliable source of income. Be sure to highlight any long-term employment or consistent career progression.
Property information
Your lender may ask you to obtain a copy of the Contract of Sale. This document will provide important details about the property, such as the purchase price, any special conditions, and any included fixtures and fittings.
Another required document is the Certificate of Title, which shows the legal ownership of the property and any encumbrances on the title, such as mortgages, caveats or easements.
Meanwhile, property valuation might be required by the lender to determine the amount of the loan and the loan-to-value ratio. You can engage a registered valuer to provide a valuation report or ask the real estate agent to provide a comparative market analysis (CMA).
Lenders also usually require you to have building and contents insurance on the property, and may require proof of insurance before settlement.
Depending on the lender’s requirements, you may need to provide additional documents such as a recent council rates notice, strata report, building and pest inspection report, or rental appraisal.
Credit history
Your credit report is a record of your credit history and is used by lenders to assess your creditworthiness. You can obtain a free copy of your credit report from credit reporting agencies such as Equifax, Experian, and illion (formerly Dun & Bradstreet).
Review your credit report carefully for errors or incorrect information. If you find any errors, contact the credit reporting agency to have them corrected.
If you have any outstanding debts, pay them off or reduce them as much as possible. This will improve your credit score and show lenders that you are a responsible borrower.
Late or missed payments can negatively impact your credit score. Make sure to pay all your bills on time, including credit cards, utility bills, and loan repayments.
Also remember, applying for new credit can temporarily lower your credit score. Avoid applying for new credit cards or loans in the months leading up to your mortgage application.
And make sure to keep your credit balances low. High credit balances can also lower your credit score. Try to keep your credit balances low, ideally below 30% of your credit limit.
Financial projections
Depending on the type of mortgage, lenders may require financial projections, such as cash flow statements or a business plan, if you are purchasing an investment property.
Before you can create financial projections, you need to have a clear idea of your current financial situation. Gather all of your financial statements, including your income statement, balance sheet, and cash flow statement. Also, collect all the documents related to your income and expenses such as payslips, bank statements, and tax returns.
Use the information you have gathered to create a budget. This should include all of your monthly income, expenses, and debt obligations. Make sure that you include all of your bills and recurring expenses.
To create financial projections, you need to have an idea of your future income. Estimate your future income by projecting your current income forward. If you expect your income to change significantly in the near future, make sure to take this into account.
In addition to estimating your future income, you also need to estimate your future expenses. Use your budget as a starting point, and then make adjustments for any expected changes, such as an increase in your rent or a decrease in your utilities bills.
Finally, use the information you have gathered to create a financial projection. This should include your estimated future income, expenses, and debt obligations. Make sure that your projections are realistic and take into account any expected changes in your financial situation.
Once you have created your financial projection, review it carefully to ensure that it is accurate and realistic. Make any necessary adjustments, and then present it to your lender along with your mortgage application.
Overwhelming But Worth It
In conclusion, obtaining a mortgage in Australia requires a significant amount of documentation. The documentation requirements for Australian banks vary, but there are several standard documents that are typically required across all lenders. These documents include proof of identification, income verification, employment history, credit history, and asset and liability information.
While the documentation process can be time-consuming and tedious, it is crucial to ensure that the bank has all the information it needs to make an informed decision about whether to grant the loan. Additionally, the documentation process helps borrowers to better understand their financial situation and how much they can realistically afford to borrow.
To make the process smoother, it is recommended that borrowers gather all the necessary documentation before applying for a mortgage. This will help to speed up the approval process and minimise the risk of delays or rejections due to missing documentation.
It is important to note that the documentation requirements for a mortgage may vary depending on the type of loan and the individual lender’s policies. It is always best to check with the lender directly to confirm what documents are required and to seek professional advice from a mortgage broker or financial advisor to ensure that you are making an informed decision about your mortgage.
In summary, obtaining a mortgage in Australia requires a significant amount of documentation, but it is a crucial process that ensures that the bank has all the information necessary to make an informed decision about whether to grant the loan.
By gathering all the necessary documentation and seeking professional advice, borrowers can ensure a smoother and more successful mortgage application process.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult your mortgage advisor before you make any decision involving your mortgage.