Essential list of documents First home buyers need for the mortgage application

Taking that first step towards buying your very first home is exciting and daunting at the same time for most of the first home buyers out there. Understanding the list of documents you’ll need can save you a lot of time, and effort before you go about applying for your first home mortgage.

1. Proof of Identity

The very first step needed towards building a comprehensive list of documents for the first home mortgage application is the Proof of Identity document. Lenders need to ensure they are lending to the correct person, which helps prevent fraud. Typically, you will need to provide:

• Passport or Driver's License: These primary identification documents should be current and valid.
• Birth Certificate: Sometimes required to supplement your ID.
• Medicare Card: Often used as an additional form of identification.

2. Proof of Income

A Proof of Income document helps lenders assess your periodic cash inflows and ultimately evaluate your repayment ability. First Home buyers get particularly better deals with better LVR ratios or lower rate mortgage plans.

For Salaried Employees:

• Payslips: The last three months of payslips from your employer is a straightforward document establishing proof of a regular income.
• Employment Letter: A letter from your employer confirming your position, salary, and length of employment.
• Tax Returns: The last two years of tax returns can provide additional income verification.

For Self-Employed Individuals:

• Business Activity Statements: This is usually for a period of the previous 2-3 years establishing income from the business.
• Profit and Loss Statements: Prepared by an accountant, these documents should cover the profit & loss accrued over the last two years.
• Tax Returns: Both personal and business tax returns for the last two years.

These statements and documents do come in super handy if the first home buyer is interested in taking advantage of the Home Guarantee Scheme backed by the government.

3. Proof of Savings

Your savings history exhibits your ability to manage finances and stack up money towards the deposit, which in turn reassures lenders of your financial heath and can help first home buyers secure better deals from lending institutions. Documents needed include:

• Bank Statements: Showing your savings account balance and transactions over the past three to six months.
• Term Deposit Statements: If you have term deposits, provide statements covering the last six months.

Proof of savings is an essential set of documents that help first home buyers in building a comprehensive mortgage application.

4. Existing Financial Commitments

Understanding your current financial obligations not only helps first home buyers take stock of their financial health but also gives the lenders a fair bit of idea about their risk appetite and ultimately ability to repay outstanding mortgage obligations:

• Credit Card Statements: These are the last three months' statements for all credit cards.
• Loan Statements: For any kind of loan that you have taken in the recent past, provide the most recent six months' statements.
• Leases or Rental Agreements: If you have any lease agreements, furnish a copy.

5. Proof of Assets

Assets accrued over time not only provide a safety net but also help in giving the required confidence to the lending institutions in your ability to repay the outstanding mortgage loans.

• Property Ownership Deeds: Provide title deeds of the properties owned.
• Vehicle Registration Papers: Furnish vehicle ownership documents.
• Investment Statements: Provide Latest Statements for any shares, bonds, or managed funds,?

6. Proof of Liabilities

Proof of liabilities basically gives lenders an insight into your existing financial commitments and helps them asses your mortgage repayment ability keeping your financial health in perspective.

• Credit Report: Credit report gives them a quick insight into your financial health segregated across a few key indicators.
• Outstanding Debts: First home buyers must always furnish statements of any other loans that they are currently obligated to pay.

7. Property Information

If there’s a particular property you have already identified then it would be wise to furnish the relevant document pertinent to that particular property as it will help the lender view your mortgage in the perspective of that property:

• Contract of Sale: The Document that defines the Terms & Conditions of Property Sale.
• Property Appraisal or Valuation: getting property assessed for its proper valuation.

8. Additional Documentation

Depending on a first home buyer’s unique situation, some more additional documents might be required:

• Rental Income Statements: it is essential to declare any income from rental properties if you are an investor.
• Divorce Decree: If applicable, provide documentation outlining any financial settlements.
• Gift Letters: If you are receiving financial support from family & friends, a letter stating the amount and that it is a gift, not a loan is required so that it doesn’t count towards the overall debt exposure of the prospective buyer.

Tips for a Smooth Mortgage Application Process

To ensure your mortgage application process goes smoothly, consider these essential tips:

1. Get your Documents Organized:

Creating a checklist helps in making sure you don't miss out on any essential requirements from the lender and you’d have better chances of securing mortgage from the lender.

2. Following Hygienic Credit Practices:

Credit Score significantly impacts your mortgage approval process. Pay bills on time, reduce outstanding debt, and avoid applying for new credit before your application gets cleared.

3. Saving for that Deposit

A substantial down payment reduces your LVR and imparts lenders with more confidence in approving your mortgage application.

4. Avoid Large Purchases

When applying for a mortgage this tip is essential. You should avoid any/all large purchases before your application is approved.

5. Consult a Mortgage Broker

A Mortgage broker can help you make sense of the otherwise overwhelmingly tedious process of buying an appropriate mortgage that works for you and also keeps your long-term financial health in perspective.

Applying for your first mortgage in Australia can be a complex process, but being well-prepared with the necessary documents can make it look like a breeze. Remember, every lender may have slightly different requirements, so it’s always a good idea to check with them directly or consult a mortgage broker to ensure you have covered all your bases.

Taking the time to understand and prepare for your mortgage application will pay off in the long run, helping you achieve your dream of homeownership which every first home buyer has dreamt of at different points in their lives.

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