What Actually Happens When You Apply for a Mortgage: Part 1
It’s kind of a rite of passage for our generation that our twenties will be plagued with the frightful D word – deposit. One minute you’re doing multiple tequila shots and wearing crop tops and all of a sudden you’re swapping Friday drinks for quiet nights in and losing sleep over a house deposit rather than your latest Tinder love story.
But we’re all so worried about saving that all important 10%, that nobody thinks to tell us what happens once you’ve got it. Well actually if we’re being accurate many banks want a 20% deposit before lending now but LOL um are they kidding?
When my partner and I saved for an apartment, we were so focused on reaching that magic number that we were completely blind to everything else that came with home ownership, SO I’ve broken down the actual process for ya (so welcome).
Stage 1: establish how much you need
You may never know exactly, but you’ll be able to gauge a sense for what types of properties are selling for what amount, and work out about 10% of that. Big tip – do your research based on past property sales, not properties on the market currently. Advertised prices often have bugger all relevance to the actual sale price, and this is where we went very very wrong.
We originally wanted to buy a two bedroom apartment or unit, so we hopped onto realestate.com.au and hellooooo sweet mutha this one is beaut and says 380,000 - 410,000! That means we only need about $40k yaaaaaas. Lol only $40k – see what this house buying shit does to ya?
What we should have done is researched recent sales results. Then we would have seen that oh yes underquoting happens and so does unplanned demand SO those properties actually sold for $450,000 - $500,000. Translation: in our fucking dreams.
Stage 2: speak to a broker
At this point, you’ll have decided what you think you can save and what type of property you’d like. The next part is go to to a broker and allow them to shred your dreams into tiny smatterings of hell in front of your very eyes.
Lol kidding sort of.
Basically a broker will look at your income, expenditure (yes they look at your bank statements) and other assets and liabilities and work out what you can actually borrow.
This is important, because it’s here where you will discover that the magic 10% isn’t actually the only obstacle in your path.
Let’s say you’ve got $40,000 in the bank. In theory you can buy a property worth $400,000, right?
You actually have to have a bunch of other qualifying factors to convince the bank that you can repay the loan.
Stage 3: get conditional pre-approval
You get this through a broker, and it’s basically a bank agreeing to lend you the money as and when you buy a property. These generally last 3-6 months, so if it’s been a while since your pre-approval came through, be careful when you come to buy.
So the bank will go through your bank statements and other evidence as requested by your broker. I often wonder if they’re going through my statements going “lol ok hun another McDonalds? Cool it beb”.
They probably were tbh. Wouldn’t you if you got to paw through other people’s spending records all day?!
An important warning here: a pre-approval is not a promise.
A lender can revoke your pre-approval at any time, for any reason. Yes it’s shit and yes I’ve cried over it and yes it makes no fucking sense at all but you just gotta accept it. We bought an apartment in a suburb where a lot of new apartments were being built at the time. We hadn’t bought one of the new ones, we bought a solid double brick apartment in a boutique, well-sought-after block. But the suburb as a whole got a little black mark next to its name, meaning our lender decided they were going to loan us less than agreed. Which meant we had to come up with an extra $11,000.
Ohhhhh sorry bank man I wasn’t aware I’d started shitting money?
At this point, it’s worth looping in a conveyancer – a solicitor that executes all the paperwork and legal shit associated with buying a property.
Once you’ve got your pre-approval, you’re probably ready to bid and make offers. Stay tuned for What Actually Happens When You Apply For a Mortgage: Part 2, when we’ll explain what happens on auction day and beyond!