A mortgage is a loan lenders provide to people purchasing homes. Mortgages are designed to be repaid over an extended period of time. Unlike car loans, which must be repaid within seven years, it normally takes between 25 and 30 years for borrowers to complete their mortgage payments. It is also possible to spread mortgage payments out over a 40-year period.
You can be pre-approved for a mortgage before you begin the process of shopping for a house. This will enable you to focus on properties that are within your budget. A mortgage 101 can help you evaluate your mortgage options and provide insight on the application process. In order to qualify for a mortgage there are several important things you will need to provide, which are explained here.
1. Income
In order to qualify for a mortgage, you must be able to establish that you have a stable income. Pay stubs can be used to verify your salary. Tax returns can also be used to verify your annual income and employment history.
Self-employed individuals may be required to provide personal and business tax returns. You will also need to present your Australian Tax Office (ATO) notice of assessment, which verifies the amount of tax you owe on your income.
2. Identification
Your lender will require you to present government-issued identification to qualify for a mortgage. Two pieces of identification are required, and at least one of these must be a photo ID. Accepted forms of photo ID include passports and driver’s licenses.
Other forms of identification that are accepted include a birth certificate, Medicare card, and tax assessment notice.
3. Expenses
Lenders will also ask questions about your living expenses. Information about your utility bills and other monthly expenses may need to be supplied to ensure your mortgage will not exceed your monthly budget. Since homeowners are responsible for more than the cost of their mortgage, your lender may also consider the costs of other essentials, such as property taxes, private mortgage insurance, and home and contents insurance.
Home and contents insurance compensates you if your home or personal belongings are damaged or destroyed in an accident or a natural disaster, such as a fire or storm. You can compare home and contents insurance with iSelect before you purchase your home so that you can be certain you can afford your monthly mortgage and insurance costs.
4. Credit History
Lenders are more likely to approve applicants who have demonstrated they consistently repay loans. Credit history is a report that establishes your ability to make required payments consistently.
Outstanding debts or unpaid bills can lower your credit score. You can use credit repair services to help you resolve those bills and improve your credit history.
5. Assets
Any personal property that you own that has value should be noted when you apply for a mortgage. You may be able to use your assets to qualify for the mortgage. The assets can secure your debt. This means that if you fail to repay the loan the lender can take possession of the assets used to authorize the loan.
Assets can also establish a history of financial responsibility. Lenders may be more likely to grant a mortgage to an applicant who has demonstrated that they make sound financial purchases. They may also be influenced by an applicant’s ability to save money because acquiring savings demonstrates financial discipline.
6. Special Considerations
Some applicants may be receiving financial gifts from family members to help them purchase their homes. Documentation from these family members can be used to establish the amount of the gift.
You may be eligible for the First Home Owner Grant (FHOG). If you are a first-time home buyer you may receive up to $26,000 towards the purchase of your home. The amount varies based on the location of the property purchased. You may also be eligible for other discounts, such as stamp duty discounts.
7. Liabilities
Liabilities are expenses that you have to repay. Car loans, home loans, and credit card debt are examples of liabilities. These costs must be considered when determining the maximum monthly payments you will be able to afford when purchasing a home.
You may be required to present loan statements to your prospective mortgage lender in order to establish the amount of the loan and your repayment history.