Getting Finance Ready

Getting finance ready is the phase where a bit of unglamorous preparation pays for itself many times over. The buyers who have their documents tidy, their credit file clean and their expectations calibrated move through this stage in weeks. The buyers who don't can spend months untangling avoidable problems, or find their borrowing power reduced by things they didn't know counted.

This chapter walks through how the assessment actually works, so you can prepare for the process as it is, not as you imagine it might be.

How lenders actually assess you

Every lender is working through the same basic equation: your income, your commitments, and a margin for error. The art is in the details of how each is measured.

On income, lenders look at base salary first, and treat variable income like overtime, bonuses and commissions more conservatively, often averaging it over a period and sometimes discounting it. Casual and contract work isn't disqualifying, but a shorter history in the role makes the assessment harder. Self employed borrowers are usually asked for two years of tax returns or financials, and it's the declared income that counts, not the money that actually hit the account.

On commitments, every ongoing debt counts, and here's the detail that surprises people: a credit card is assessed on its limit, not its balance. A card with a $10,000 limit you pay off every month still reduces your borrowing power as if you owed $10,000. Buy now pay later accounts are treated similarly by many lenders. HECS and HELP debts reduce capacity too, since lenders factor in the compulsory repayment.

On the margin for error, Australian lenders are required to assess whether you could keep paying if rates rose, so the test rate is set meaningfully above the actual rate. This is a good thing: it's the system's way of asking whether you can survive a rate cycle, which is the question worth answering anyway.

Borrowing power versus what you can live with

The number a lender tells you is the most they will lend. It is not a recommendation. Your actual comfort level depends on your spending, your stability, your plans and your tolerance for a tight month.

A habit that serves many first home buyers well is working backwards from a repayment they'd be relaxed about, and letting that set the loan size, rather than taking the maximum and adjusting life around it. On a variable loan, it also makes sense to test any repayment against a rate a couple of percent higher than today's, because over a 30 year loan that scenario will probably arrive at some point. The tools hub has a borrowing illustrator that shows how lenders think through composite situations conceptually.

Deposits and genuine savings

When the deposit is under 20 percent, most lenders want to see that at least part of it was genuinely saved by you, typically accumulated and held in an account for a period, often three to six months. This is evidence of the savings habit, not a test of character.

Money that arrives from outside, a family gift, an inheritance, a First Home Super Saver release, is usually acceptable, but it needs to be declared and documented, including a letter confirming a gift is a gift rather than an informal loan. Rental history can sometimes substitute as evidence of payment discipline. The common thread: surprises are the enemy. Tell your broker or lender where every part of the deposit came from, early, in writing.

Pre-approval: what it does and doesn't do

A pre-approval (sometimes called conditional approval or an indication of borrowing power) is a lender's statement that, based on the documents and information you've provided, they'd expect to lend up to a certain amount. It typically lasts three to six months, and it's the thing that lets you search with confidence, and bid at auction knowing the finance signal is green.

What it doesn't do: it doesn't guarantee the loan. The property itself still has to pass valuation and the lender's security checks, and your situation still has to be unchanged at unconditional approval. A pre-approval issued in February doesn't survive you changing jobs in March without telling anyone. A few other details worth knowing:

• Some pre-approvals are fully assessed and some are system generated from unverified data; the fully assessed kind takes longer and is worth more.
• Pre-approvals are not credit applications in the damaging sense, but a pile of them with different lenders in a short period isn't a good look on your file. Choose a lender or broker deliberately rather than spraying applications.
• Getting pre-approved before you fall in love with a property saves the specific heartbreak of finding the home first and discovering the finance second.

Broker or bank direct

A mortgage broker works with a panel of lenders and can compare products, policies and timing across them. Brokers are paid commission by the lender the loan ends up with, which you should know, and good brokers disclose it freely. Going direct to a bank means one product set but sometimes access to deals brokers don't see. Neither path is universally better, and many buyers talk to a broker and their own bank and see who takes the process more seriously.

What tends to matter more than the channel is the person: someone who explains policy trade-offs clearly, responds before auctions, and tells you the things you didn't ask about. The MFAA and FBAA links in the resources hub help find accredited brokers.

Credit hygiene before you apply

In the months before applying, a few habits protect your file:

• Order your free credit report and check it for errors. The resources hub links the main agencies; you're entitled to a free copy each year.
• Avoid new credit applications, including some buy now pay later sign-ups and telco plans, in the window before a mortgage application.
• Pay everything on time. Repayment history is recorded and recent late payments hurt.
• Close or reduce unused credit card limits before applying, since, as above, the limit counts against you even at a zero balance.
• If something on the report is wrong, get it fixed before the lender sees it, not after.

The document pile

Whichever lender you use, the paperwork is similar. Getting this pile together before you talk to anyone is the single easiest way to shorten the process:

The bank statements deserve a comment: they're read, not just collected. A lender reading six months of statements sees the actual pattern of your life, including transfers to gambling services, buy now pay later stress and inconsistent savings. If your statements tell a different story than your application, expect questions.

Rates, features and comparison rates

The headline rate is the beginning of the comparison, not the end. A comparison rate wraps most ongoing fees into a single rate so products can be compared more honestly. Beyond price, the features change how a loan behaves in real life:

For many first home buyers, the practical question is less "which lender has the best rate" and more "which structure lets me sleep at night and still pay this down faster". An offset account that actually holds your spare money is worth more than 0.05 percent on a headline rate that a working professional never sees again.