Preparing to partner with a new bank, whether for a property purchase or refinancing, means ensuring your documentation and information are organised for the loan application process. Being ‘document-ready’ ahead of time can save you both effort and stress down the line.
In the first half of this chapter, I detail all the necessary documentation and information you’ll need to gather and present to your new bank. Then, in the second half of the chapter, we look at the costs associated with starting a new banking relationship.
Getting Document-Ready
I won’t sugarcoat it – this part of the process isn’t exactly thrilling. But it’s undeniably crucial. To ensure this process is as streamlined as possible, and to alleviate some of the associated headaches, my business uses a customer portal designed specifically for this purpose.
With just a click, you’ll gain access to your own section where you can input the necessary information and upload the required documents. It’s a clear and user-friendly way to tackle this essential step.
So, what exactly do you need to gather? Let’s break it down:
Identification
- Copies of your driver’s licence and passport
- Most recent rates notice on all properties you own (if applicable)
Income
PAYG employment
- Two most recent payslips
- Most recent tax return
- Most recent notice of assessment (NOA)
Self-employed (sole trader)
- Two years of individual tax returns
- Two years of notice of assessments (NOA)
Self-employed (company/trust)
- Two years of company tax returns and financials
- Two years of individual tax returns
- Two years of notice of assessments (NOA)
- If you are buying in a trust, a copy of your trust deed is required
Rental income
- Three months of rental statements on any rental properties you own
Other income
- Documentation to support this income
Debt (outside mortgage loan)
- Three months of statements
Bank statements
- Six months of home loan history confirming balance and good conduct (if applicable)
- Three months of daily transaction history
- Three months of salary credits (if different from your everyday transaction account)
- Three months of savings statements
- Three months of statements for all non home-loan debts
At Brava Finance we use CashDeck as an alternative, and less time consuming, method for collecting bank statement data.
If you’re refinancing, it’s also helpful to understand what documents are needed to refinance a home loan in Melbourne so you can stay prepared.
Personal Particulars (Questionnaire)
Included within the customer portal is a section to provide the following information required for the loan application:
- Three years of residential history
- Three years of employment history
- Assets and liabilities
- Monthly living expenses
- Needs analysis questionnaire – this is important to ensure any lender recommendation is within your best interests as part of the BID requirements.
Once we have received this information, the hard work is pretty much done!
We then use this information and follow a ‘checks and balances’ process to determine the viability of the application, most importantly:
- Good conduct – including on-time repayments, no overdrawn fees, no red flags (e.g. gambling)
- Income – confirming income amounts by checking pay slip and tax return information and/or company tax returns and financials
Included with the application is also your:
- Property valuation. Once a lender has been determined, we will order a property valuation to ensure your LVR is less than 80%. Anything over 80% is determined as more risky by the lender, and it is more than likely that lenders mortgage insurance (LMI) will come into play.
A property valuation is usually at no cost to the customer. You will be advised if there is a cost associated, depending on your lender choice.
- Credit report. Once your consent is received via the customer portal, we will organise a credit report to check that your credit score is within lender policy. If not, we may need to widen our lender search.
What I’m Looking For
What am I, as your mortgage broker, looking for in all these documents? Allow me to explain…
Identification
This one is very simple. Forms of identification are used to prove you are who you say you are!
Bank Statements
Here I am looking for evidence of good conduct. I look for salary credits to prove employment, and that your transactions are in line with your living expenses. I also look for any overdrawn account fees, evidence of debt not disclosed during the discovery stage (e.g. ‘buy now, pay later’ payments), red flags (e.g. gambling) and anything else that may happen to pop up.
Any anomalies will need to be clarified with the customer and referenced in the broker notes supporting the loan application. Sometimes, too many red flags (e.g. a large number of overdrawn fees) may mean we cannot proceed with the loan application.
Payslips, Tax Returns, NOAs
If you are PAYG, I will use the information from the payslip to understand the breakdown of your pay (e.g. base/overtime/allowances) to determine the amount the lender will use for servicing. Some lenders ‘shade’ overtime (unless you’re an essential service or medical worker), so the full 100% of the overtime pay cannot be used.
I will also look at salary sacrificing, HELP debt payments and YTD amounts, which can be annualised, to get a better understanding of your pay. If the work isn’t done at this stage, the wrong income figure may be used, which could impact servicing and viability of the loan application.
Self-Employed Financials
With self-employed applicants, it can be more difficult to determine income, and every lender is different in the way they treat this category. Some lenders use an average of the income recorded on the NOAs over a two-year period, some require net profit (plus addbacks) over a two-year period, and some lenders will look at one year of financials in isolation.
This is another reason (if you needed one!) why it’s so beneficial to use the services of a mortgage broker who understands different lender policies and niches and the best way to present your income depending on business performance history.
Personal Particulars Questionnaire
There is a questionnaire in the online customer portal that will need to be filled out before the application can be submitted. Best interest duty (BID) requirements state that any loan recommendation needs to be within the customer’s best interests. So it is in this portal (and at the discovery stage) where these are documented and analysed to ensure the lender recommendation is in fact within your best interests.
With our advice and guidance, you can navigate this process with more confidence, knowing that you have a dedicated ally in your corner every step of the way.
Fees and other expenses
As you navigate the mortgage landscape, it’s essential to recognise that transitions in banking relationships can come with financial implications.
Whether you’re wanting to purchase a property or refinance, the decision to break up with your existing bank and forge a new relationship requires careful consideration.
Before you switch, it’s worth reviewing resources like what you need to know before changing banks, which highlights some important factors to keep in mind.
Refinance Costs
When weighing up the decision to refinance, it’s essential to consider the associated costs within the broader financial picture.
A good question to answer during your evaluation is how many months will it take for the potential monthly repayment savings to offset these costs?
There are two typical cost categories associated with refinance: breaking up with your current bank, and starting a relationship with a new bank.
Breaking Up
In the dynamic world of mortgages, ‘breaking up’ with your bank is akin to ending a long-term relationship and it can be a pivotal move towards a brighter financial future. Much like personal relationships, sometimes parting ways is the best decision to achieve your goals. It involves a process of weighing up the pros and cons – see a couple of the cons below:
- Mortgage discharge fee:
The first part of the break up involves discharging your existing mortgage with your outgoing lender. This typically incurs a fee of around $350, although it’s worth noting that some lenders may charge more or less. As your mortgage broker, I can access this information through my system and provide you with upfront details to avoid any surprises. - Fixed rate break fee:
If you currently have a fixed-rate loan with time remaining, you may also encounter a fixed rate break fee. This charge is imposed by the lender and is calculated based on factors such as the loan amount, remaining fixed term, and changes in the cost of funds. While there are online calculators available to estimate this cost, your lender can also provide you with specific details upon request.
Starting a New Relationship
Now, let’s shift our focus to starting a relationship with your new bank. As with any new beginning, there are costs to consider, which should be disclosed early in the conversation. If you are using a mortgage broker to help with this process (and I recommend you do!), these costs may influence your decision regarding which lender to choose:
- Set-up/application fee:
This can range anywhere from $0 to $600, depending on the lender and their fee schedule. A mortgage broker can provide you with a lender product comparison that compares different lender information, including set-up/application fee. - Valuation fee:
This is typically priced between $100 and $400, although many lenders waive this fee altogether and absorb the cost themselves. - Monthly or annual account fee:
Some products may also come with a monthly or annual fee, particularly those bundled with package products featuring an offset account. Typically, a basic home loan with redraw will not attract any monthly fees because the redraw is a feature of the home loan.
But because an offset product is a separate transaction account (linked to your home loan), you are often charged for the additional account functionality, which includes a debit card for convenience. - Land registration fee:
Approximately $200. This is a fee charged to remove the old mortgage and replace it with the new home loan. - PEXA fee:
Approximately $50. PEXA stands for Property Exchange Australia and is Australia’s online property exchange network. It enables users to lodge documents and complete financial settlements electronically. This fee covers the provision of PEXA’s services, which includes setting up the PEXA file to facilitate communication with the outgoing lender for settlement date and time.
If you’re just beginning this journey, it may also be helpful to review an ultimate mortgage preapproval checklist, which can give you a head start before applying.
Typically, a basic home loan with redraw will not attract any monthly fees because the redraw is a feature of the home loan.
Property Purchase Costs
For many, buying a home marks a significant milestone, but it’s essential to comprehend the financial commitments that come with it.
From state-specific stamp duty to various administrative fees, navigating the costs associated with property acquisition is crucial for informed decision-making.
By understanding these expenses, you can proactively manage your finances and ensure that your dream of home ownership aligns with your long-term financial goal.
Stamp Duty
Stamp duty (land transfer duty) is calculated as a percentage based on the property’s value and varies between states. Understanding the applicable rates in your state is essential for accurate budgeting. You can use this calculator to work out approximate stamp duty costs depending on the state you live in: https://carajulian.com.au/mortgage-calculator/stamp-duty-calculator/
You may be eligible for exemptions and concessions from land transfer duty on your property, especially if you are buying a home for the first time. You can contact your relevant state revenue office for more information.
Set-Up/Application Fee: This can range from $0 to $600, depending on the lender and their fee schedule.
A mortgage broker can provide you with a lender product comparison that compares different lender information, including set-up/application fee.
Transfer Fees and Registration Fees: These fees encompass various administrative tasks, including mortgage registration and transfer of land, and are typically dependent on the property’s value.
PEXA Fee: Approximately $50. PEXA stands for Property Exchange Australia and is Australia’s online property exchange network.
It enables users to lodge documents and complete financial settlements electronically.
This fee covers the provision of PEXA’s services, which includes the lender solicitor’s charge for setting up the PEXA file to facilitate communication with the outgoing lender for settlement date and time.
Solicitor/Conveyancer Fee: Approximately $2,000. Engaging legal assistance during the property purchase process is crucial.
Solicitors or conveyancers charge for their services, ensuring legal compliance and smooth transaction processes.
Valuation Fee: Approximately $100 to $400. Typically, lenders will require their own valuation of the property and may expect the borrower to do this at their own cost.
Monthly or Annual Account Fee: Some products may also come with a monthly or annual fee, particularly those bundled with package products featuring an offset account. Typically, a basic home loan with redraw will not attract any monthly fees because the redraw is a feature of the home loan. But because an offset product is a separate transaction account (linked to your home loan), you are often charged for the additional account functionality, which includes a debit card for convenience.
By understanding these expenses, you’re better equipped to make informed choices that align with your financial objectives.
Remember, transparency and foresight are key as you embark on any financial journey. With that in mind, let’s proceed to Chapter 6, which pinpoints common mortgage mishaps, as well as tips that could help you pay off your mortgage faster.
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