Step-by-Step Guide to Getting a Home Loan

Buying a home is an exciting milestone and a significant financial decision. Whether you’re dreaming of your first property or planning to upgrade, understanding how to secure a home loan in Australia can help you take confident steps toward homeownership. While the process may seem overwhelming, it becomes manageable when broken down into clear, actionable stages.

This comprehensive guide walks you through every step of getting a home loan in Australia—from preparing your finances to finalising settlement. Let’s dive in.

Step 1: Assess Your Financial Position and Borrowing Power

Before approaching lenders, take the time to review your financial situation. This helps you understand how much you can realistically borrow and what type of loan might suit you.

Calculate Your Borrowing Power

Your borrowing power is the maximum amount a lender may offer based on your income, debts, expenses, and credit history.

Factors influencing borrowing capacity include:

• Income and employment status
• Existing loans and credit card debts
• Monthly living expenses
• Number of dependents

Use online calculators or speak with lenders to get an estimate. Borrowing limits vary from lender to lender, so it’s wise to compare.

Save for a Deposit

Most lenders require a deposit of at least 5%, but a 20% deposit is ideal to avoid paying Lenders Mortgage Insurance (LMI), a one-off cost that protects the lender if you default.

Tips to boost your savings:

• Set clear savings goals and track your progress
• Automate transfers to a savings account
• Create a realistic budget and reduce unnecessary spending
• Explore investment options if your timeline allows

Check Your Credit Report

A healthy credit score is key to accessing competitive interest rates. Request a free report from agencies like Equifax, Experian, or Illion, and take steps to improve your credit if necessary.

Step 2: Understand Home Loan Types and Compare Offers

There are many types of home loans available in Australia, and choosing the right one depends on your financial goals, preferences, and risk tolerance.

Common Home Loan Types

• Variable-Rate Loans: The interest rate moves with market conditions. Offers flexibility and the potential to pay off your loan faster.
• Fixed-Rate Loans: The rate is locked in for a set period (usually 1–5 years). Provides repayment certainty but limits flexibility.
• Split Loans: Combines fixed and variable rates. You choose how to divide the loan (e.g., 60/40).
• Basic Home Loans: Simple, low-fee variable loans with minimal features—great for borrowers seeking low rates without extras.
• Package Loans: Bundles your loan with products like credit cards or savings accounts. May offer discounts but can include annual fees.

Specialised Loan Options

• Low-Doc Loans: Suitable for self-employed borrowers with limited documentation.
• Guarantor Loans: Let a family member use their equity to support your deposit.
• Construction Loans: For those building a new home; paid in stages.
• Equity Release/Reverse Mortgages: For seniors using home equity for income.
• Relocation Loans: Helps bridge the gap when buying and selling properties.
• Rural Loans: For hobby farms or regional properties, with varying eligibility rules.

Compare Key Features

When shopping for a home loan, look at:

• Interest Rates: Lower rates save you money over time.
• Comparison Rates: Include fees and charges for a clearer total cost.
• Repayment Types: Choose between principal and interest (standard) or interest-only (for specific scenarios).
• Loan Terms: Usually 20–30 years; shorter terms reduce total interest paid.
• Loan Features: Look for offset accounts, redraw facilities, or the ability to make extra payments.

Offset accounts and redraw facilities help reduce interest costs, but may come with additional fees. Make sure the features are worth the price.

Step 3: Apply for Pre-Approval

Once you’ve found a loan product that suits your needs, it’s time to apply for pre-approval.

What Is Pre-Approval?

Pre-approval (or conditional approval) is an initial green light from a lender. It shows how much you’re likely to be approved for, allowing you to search for properties within your budget.

Pre-approval usually lasts 3 to 6 months. It’s not a guarantee, but it strengthens your position when making offers on properties.

Documents You’ll Probably Need

• Proof of income (payslips or tax returns)
• Recent bank statements
• List of assets and liabilities
• ID (e.g., passport, driver’s licence, Medicare card)

Getting pre-approved helps streamline your search and shows sellers you’re a serious buyer.

Step 4: Make a Formal Home Loan Application

Once you’ve found the right property and had your offer accepted, you’ll need to submit a full loan application.

Gather Necessary Documents

The lender will require:

• Identification documents
• Proof of income and employment
• Recent bank statements
• Details of debts and financial commitments

Application Process

Here’s how it works:

• Submit Application: Provide your personal and financial information.
• Credit Check: The lender assesses your credit history and financial health.
• Property Valuation: The lender confirms the property’s market value.
• Unconditional Approval: Once verified, the lender issues final approval.
• Loan Contract: You’ll receive and sign the official loan agreement.

If everything goes smoothly, the lender will prepare for settlement.

Step 5: Finalise Settlement

Settlement is the final stage where the ownership of the property is officially transferred to you.

What Happens During Settlement?

Your lender transfers the agreed loan amount to the seller, and the property title is updated to your name. This typically happens a few weeks after signing the purchase contract.

During this time, you may need to:

• Pay stamp duty (state-based tax on property purchases)
• Finalise insurance and council registration
• Complete any additional paperwork

Once settled, you’ll begin making mortgage repayments according to your loan terms.

Government Support for First-Home Buyers

Australia offers several schemes to help first-time buyers enter the property market:

• First Home Owner Grant (FHOG): A one-time grant for eligible buyers of new homes. Requirements vary by state.
• First Home Guarantee: Buy with a 5% deposit without paying LMI.
• First Home Super Saver Scheme (FHSSS): Save a deposit through your superannuation, with limits of $15,000 per year and up to $50,000 in total.
• Regional First Home Buyer Guarantee: For those buying in regional areas.
• Family Home Guarantee: Supports single parents with dependents in purchasing a home.

Make sure to check your eligibility on the relevant government websites.

Avoiding Lenders Mortgage Insurance (LMI)

To avoid LMI, aim for a deposit of at least 20%. If that’s not possible, consider the following alternatives:

• Use a guarantor (such as a parent)
• Choose lenders that waive LMI for certain professions (doctors, lawyers, accountants)
• Apply for government-backed low-deposit schemes
• Seek lenders offering special LMI discounts or waivers

LMI is a one-time cost paid at settlement, and while it protects the lender—not the borrower—it can add thousands to your purchase price.

Tips to Pay Off Your Home Loan Faster

Once you’ve settled into your new home, consider strategies to reduce your loan term and interest payments:

• Make biweekly repayments: This results in one extra monthly payment per year.
• Use an offset account: Reduce your interest by linking your savings to your mortgage.
• Make lump sum payments: Apply bonuses or tax returns toward your home loan.
• Find a better rate: Periodically review the market and negotiate with your lender.
• Pay more than the minimum: Even small increases in repayments can shorten the loan term significantly.

Seek Professional Advice

Applying for a home loan is a big step. Consulting a mortgage broker or financial advisor can make the process smoother.

Brokers understand lender requirements and can match you with loans that suit your financial situation. They also help explain complex terms and ensure you’re not overpaying or missing out on better options.

Just remember: brokers are legally required to act in your best interest—but it’s always wise to ask questions and understand the terms before signing.

Final Thoughts: Be Prepared and Stay Informed

Getting a home loan in Australia can seem complex, but breaking it down into steps makes it more approachable. From understanding your borrowing capacity to choosing the right loan and navigating the settlement process, each stage plays a crucial role in your journey to homeownership.

Do your research, compare lenders, and don’t rush. A well-informed approach will help you avoid costly mistakes and ensure you secure a loan that aligns with your financial goals.

With patience, planning, and the right guidance, you’ll be holding the keys to your new home before you know it.