Home Loan Process

Do you want to buy a home but don’t know where to start with your finance? Here’s what you need to know.

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, updated on August 7th, 2023       

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The home loan process can be confusing, especially if you’re a first home buyer. Find out all the steps and how you can maximise your chances of having your home loan application approved.

What’s the first step in the home loan process?

If you think the first step in the home loan process is finding a home you want to buy, think again. Ideally, you should get a home loan pre-approval before you go house hunting.

Getting a home loan pre-approval will provide you with two major benefits.

It will let you know the home selling price you can afford.

This will help you to avoid wasting time looking at homes you won’t be able to buy. You can use our Savvy calculator to work out your potential borrowing power before you formally apply for pre-approval.

It will give you more power to negotiate on price with home sellers.

The Australian real estate market is highly competitive. Good homes for sale can attract many potential buyers. Making an offer to a seller that isn’t conditional on finance approval can put you ahead of the pack. Your pre-approved finance could be the difference between you securing your dream home and missing out.

A home loan pre-approval is usually valid for up to six months if your financial situation doesn’t change.

What is the HEM calculation?

HEM is an acronym that stands for Household Expenditure Measure. Most lenders use it to determine how much you can afford to borrow. They analyse what home loan repayments you can afford, taking into account your income and all your other expenses. HEM data is based on information compiled by the Australian Bureau of Statistics.

Lenders in Australia are legally required to lend responsibly. This means they must verify that you can afford your repayments.

The HEM indicates what your average monthly expenses are likely to be based on your family size and income. For example:

  • couples are likely to spend more than singles.
  • families are likely to spend more than both couples and singles.

The tables below give you an idea of the HEM for different couple and single household situations respectively.

Monthly income - $9,914 to $11,913 Monthly income - $11,913 to 14,342 Monthly income - $14,342 to $16,771
Couple
$3,751
$4,184
$4,726
Couple with 1 dependant
$4,055
$4,485
$5,024
Couple with 2 dependants
$4,404
$4,844
$5,396
Couple with 3 dependants
$4,697
$5,143
$5,703
Couple with 4 dependants
$5,013
$5,013
$5,463
Couple with 5 dependants
$5,328
$5,783
$6,354
Couple with 6 dependants
$5,643
$6,103
$6,679
Couple with 7 dependants
$5,959
$6,423
$7,004
Couple with 8 or more dependants
$6,274
$6,742
$7,330

What types of home loans are available?

There are different types of home loans to suit different needs. The most common are listed below.

Owner-occupier loans

As the name suggests, this is a loan for when you are buying a home to live in yourself.

Investment property loans

You take out an investment property loan if you’re buying a home to rent out to tenants.

Variable interest rate loan

This is where the interest rate on the amount you borrow can move up or down over time.

Fixed interest rate loan

The interest rate on these loans stays the same for a specific period (usually one to five years).

Construction loan

This is a loan you get when you’re building a home rather than buying an established one. The construction home loan process has two separate phases – one for buying your land and one for the building phase.

Principal and interest loan

This is a standard home loan where you repay what you borrow, plus interest.

Interest-only loan

This is a special type of loan where repayments are interest-only for a short-term period.

The most appropriate loan for you will depend on your individual circumstances.

What is the process once my home loan is pre-approved?

  • You can start looking for a property to buy!
  • When you find your dream home within your pre-approved budget, confidently make your offer. You might even be able to negotiate a discount off the price.
  • Once the seller accepts your offer, you’ll enter into a contract of sale with the buyer. You’ll then usually have to pay a deposit to secure the property.
  • Your lender will review your contract and conduct a property valuation. They will then provide you with your formal loan documents for signing.
  • Your sale contract will contain a settlement date that you have negotiated with the buyer. This is the date that your home loan funds will transfer to the buyer. Your lender and conveyancing solicitor will arrange for this to happen. You’ll take ownership of the property once these funds have transferred on the settlement date.

Helpful guides on home loans

How to renegotiate your home loan?

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