The Application Process

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge and I'm joined by our general manager and finance broker, Chelsea Burton. How you going?

I'm good.

Now today I just want to talk about the mechanics of the loan application process. So what does a client have to go through when. Right from start to finish when they're getting a new loan. So let's talk about what's the very first step?

So the very first step is obviously being contacted by your broker or you contacting your broker and doing a pre qualification phone call. So the broker will ask you questions about your income, your assets, if you're purchasing, what savings you've got, and make sure that you are a candidate for a loan.

Awesome. And then from there, what's the next step?

So if everything is good, the broker will organise a time to have a more involved chat with you. And this can be done by video call. It might be done face to face, but you'll need to complete a fact find document where they'll want to know everything there is to know.

Yeah, they're very detailed nowadays, aren't they?

Very, very detailed. So they'll ask about, you know, where you've lived or your employment history. Everything to do with your living liabilities.

Yeah.

How much you spend on your phone bill, how much you spend on dog food. Like they want to know.

So literally a dog food section. I mean, but this is important, isn't it? It has changed a lot over the last couple of years and become much, much more in depth. The whole idea is that we need to have a full understanding of your financial picture to make sure that this loan is suitable for you. That's the job.

Absolutely, absolutely.

I mean, years ago it used to be that the broker would say to you, how much do you spend a month? And you go, oh, $2,000. And that would be fine. But now we need to make sure that you can afford the loan that you're applying for so we exactly what you're spending and a lot of the time that's going to change if you're buying, particularly it's going to change after you purchase. But we need to know what you're doing now and also what your plans are for the future in terms of your expenses.

Absolutely. And a big part of the fact finding process and those initial conversations is really to get an understanding of what you really need and want. It's not just about a loan anymore. It's about a full financial picture and understanding. Hang on a second, what are your goals, both short term and long term, and how do we help you achieve them through these loans? And there are so many different loans and different finance options available nowadays.

Absolutely.

So many. And I mean, this is. It's a commitment. I mean, a loan is a 30 year commitment. So you want to make sure.

Marriages, let's be honest. Exactly right.

So you want to make sure that you're getting the right one that's going to suit your needs and not just your needs now, but your needs into the future. So, you know, you need to. The broker will talk to you about things like whether or not you need an offset account, what sort of repayments you're going to need, you know, what sort of bank you want. I mean, do you want one with the branch? Do you want one that's just online? Do you need somebody you can speak to or are you happy to do it by email? I mean, these are all considerations.

Absolutely.

To look at. And then obviously there are different types of loans that have different types of rates and different types of requirements. I mean, do you want a fixed rate loan, do you want your loan to be variable because interest rates may drop, or do you think that interest rates are going to go back up, in which case maybe you do want it to be fixed.

Yeah. So many options.

So many.

And there's even different strategies in terms of if you're an investor and your whole goal is just getting more and more properties and you just want to have, you know, fixed interest only so you can continue to borrow more money for other properties. Or are you an average Australian family that's just looking to pay down their own home loan better and maybe they need a bit of a help and they want a full service loan. There's those options as well.

Absolutely.

Or you've got a home that you're planning on buying a new home down the track, this property will become an investment property. Therefore you need an offset account attached so you can keep that debt as tax deductible in the future. There's so many different strategies and they're all going to be personal, personalised to your situation.

Absolutely.

So it's going to be quite an involved discussion that you have with your brother.

And a lot of people get a little bit frustrated by it. And it's. And it's totally understandable because it's almost like we're taking blood samples while we're doing it. It's that in depth, but it's so Important. And it's all about building that financial picture. And the more we understand you, the better we can help you.

Exactly.

So we've had those conversations. What happens after that?

Okay, so then we will decide which lender is going to be best for you. Now, ordinarily, your broker would give you a few options and you'll be the one who ends up choosing who you want to go with. We then need to submit an application to the lender. So that involves completing their application form and every month more questions. And yeah, they all have different questions that they want to ask. They all have different expenses categories that they want completed. So there will be more questions. We also need to submit some supporting documentation to them.

And by some you mean a lot. A lot.

So they want to see your entire financial situation. So we'll need pay slips, we'll need payment summaries. We will need your last three to six months bank statements for every single account that you have.

Yeah, every single account and every single debt. A lot of it used to be that you'd only have to provide statements for the loans that you're looking to repay or consolidate, but now they want to see everything. Every single transaction that you make matters now in the eyes of the bank.

Yeah, exactly. And yeah, they want to make sure that the expenses that we've disclosed to them are what you're actually paying.

What's this additional debt that we didn't know about? Oh, gosh.

Exactly. And one thing that they will pick up because they all do a positive credit check now, which doesn't just show what inquiries have happened recently, but actually shows what active credit you currently have. And they will pick up things that you've forgotten about.

Yeah.

Which you'll need to get credit.

Which is hilarious. Yes. Yeah.

So there is quite a lot involved.

In getting an application ready. Identification.

Yes.

It's a big one. If you've had a change of name, providing marriage certificates or whatever it may be, rates notices. Rates notices? Yeah, ownership on the property.

If you're salary packaging, anything. We'll need salary packaging statements. Well, as the statement from the lender that you're going through.

Yeah.

So there will be a lot of.

And it's important to remember that these, these documents need to be current, so they need to be within the last four weeks. Yeah.

I mean, with some lenders now it's even 14 days.

Yeah. So we almost advise clients that as you're going through a home loan application, every time you get a new pay slip, just forward it to us anyway so we can make sure that the documentation is always kept updated. So it might get quite frustrating because you provide some documents to us, it might take you another couple of weeks to get the rest of the documents. Then those original documents that you've provided have expired. So we, it does get very frustrating and annoying. But it's just one of those things that the day we submit that application to the bank, those documents need to be updated and current.

Absolutely.

And with some lenders we do evaluation before it gets submitted to the bank and if it's an investment property and the tenant won't let the valuer in for two or three weeks, we're going to need all updated documentation.

Again, so frustrating.

Yeah, so frustrating.

Unfortunately, it's just one of those things. They've got some great technology nowadays to help with the collection of documents.

Absolutely.

BankStatements.com. yes.

That's game changing.

Yeah.

All you do is you pop in your login details for your bank and it automatically sends your broker your last six month statement, which is amazing.

So fantastic. So that's really helpful. A very, very secure site. A lot of people are a little bit concerned about the security of it. Can you speak to that at all? Yeah.

So it's got your full 256 encryption. It's nice and safe. It's a one time transaction. So you put in your details, it sends to your broker, it's read only access and it's wiped after that.

Yeah. So that's fantastic. Especially because nowadays we all seem to have about 10,000 different transactional accounts.

Exactly.

So that's, that's very handy as well. And then so we're providing supporting documents. We've signed the bank's application form. Now can the signatures be digital?

Nowadays some lenders will allow digital. Some lenders still want wet signatures. Yeah, it just really depends on how progressive they are.

Yeah. Fantastic. So we've got together the application form and supporting documents and then what happens behind the scenes?

Yeah.

So then the broker will submit it to the lender. The lender will then want to have a look at it. Now this process can take anything from two to three days to seven weeks.

Depending on the bank, if not longer.

So lenders periodically come out with specials. They come out with, you know, cheap rates or special products that they're doing. And when that happens, obviously they get a massive influx in business and that causes them to slow down because they don't hire new staff for that. So when they come out with specials, their turnaround time for assessment will delay. I mean there are, there's one lender at the moment who's currently on 35 business days, which is seven weeks.

Wow.

And then there are other lenders where you know they're equally cheap but they don't have a special. A special.

That is. Another part of the whole process is that if you've got the time to spare, then great, you go for whichever lender you want. But if you have specific time constraints, maybe that's something to consider. And a question to ask in a part of that preliminary assessment stage is saying, well, I've got a purchase, I need a formal approval in the next 14 days. What lender is going to be able to achieve that?

Absolutely, absolutely.

It's imperative because again, you can be waiting for a very long time and if it's a purchase and you've got to settle in four weeks, you can't have a seven week turnaround.

That would not help. But if you've got the time to spare, it's always important to be prepared for the fact that it's going to take a while. This process does take a long time. You've got to remember that the bank is lending you a lot, lot of money. This is a lot of money. If you ask a friend to lend you $400,000, they probably would take their time too. So it's just, it's one of the things where they have to be sure that they're comfortable lending that money to you. You need to provide all the documents that they ask for. And that's just how it works.

Exactly right. And now at this point, I mean, your broker's asked you for all of these documents. They've now submitted your loan to the bank. The bank is going to ask for more documents.

Always. Yeah.

So be prepared for that.

It is going to happen and usually it's rather obscure. It missed along the way, like one deduction on your pay slip that need to know what that deduction is for and you know, or there's a transaction in their statement that they can't account for. What does that mean? All those sort of things. So those questions will pop up. You know, your broker's job is there to help you through this process and to prepare you as much as possible and prepare the application as much as possible at the beginning. But no broker will ever have an application get all the way through to settlement without additional questions being asked.

Absolutely, absolutely.

And as I said, once you submit the loan application, the bank is going to do a credit check and they're going to find additional Items anyway. So 100% of the time they come back with additional things that they require.

Yep. Now, let's talk about the valuation. We touched on that before. So how does that work?

Yep. So banks are different. Some banks will basically do a desktop valuation. So somebody will jump online, have a bit of a look at your property and other properties in the area and decide what your property's worth. Some of them will want to do what's called a curbside valuation, which basically means they drive by and have a look at the front of your house and decide what makes sure it's there.

Yeah, yeah, there's a house there.

There's a house. Exactly. And it's not clearly under construction. And then sometimes they want to do a full valuation, in which case the value will contact you and someone will come out, walk through your house, take photos and determine what your house is worth based on that. Valuers are historically conservative, very conservative. Their job is to tell the bank what your house is worth at a fire sale. So if they needed to sell it urgently, this is what they'd sell it for. And it's not uncommon for that to be 10 to 15% less than what you think it's worth.

Absolutely.

And what a real estate agent would tell you it's worth.

Absolutely, yeah. And there is a big difference between what you, if you had to sell it tomorrow, what could you, what could you get for it compared to if you had a three to six month extended campaign? With property marketing, like there is a difference.

Absolutely, absolutely.

So the important thing to know though is the bank will lend to you based on what that value assess.

Another thing to be mindful of with valuations themselves is sometimes the valuers will pick up on things that may be an issue, such as if you have a pool but you don't have the correct fence installed. That is an issue that they're going to bring up with the lender. And the lender is going to require that you have that fence installed.

Absolutely, absolutely.

Any major damage to the property, so cracks and things like that, they're going to want to see that fixed. And what they'll do is say, okay, we're going to estimate that it'll cost, say, $5,000 to fix the issue. The lender may hold back that $5,000 at settlement and they will only release it once that issue has been resolved.

Absolutely, absolutely.

And one thing that we see that's quite common is people who have spas on their patios, because if they're not fenced off, the value will comment on it.

Absolutely.

Most people Have a locked cover though, so that sort of negates that.

Okay, fantastic. So that's valuation. So the lender's having a look at it, they've had the valuation, they've checked the credit report, they do their ass. Once they've signed off on it, after the many rounds of supporting documents, after they've signed off on it, it's called a formal approval. And what happens from there?

So from there they will instruct their solicitor to prepare loan documents for settlement. So the solicitor will create a variety of documents. There will be a loan agreement, there will be a mortgage document which is basically designed to take your current lender off the title and add the new lender to the title. And they will have other things that they require as well, which will all get posted out to you or digitally sent out to you.

Yeah. This is an amazing thing that's been introduced in the last 12 months. Is it 12 months?

Digital loan documents, which are amazing.

Such a game changer. We've always found that with paper documents it's incredibly difficult because more often than not you'll miss one signature. It's just one of those things where there's so many documents, it can be 40, 50 pages that you'll miss one. So the digital documents have been fantastic, great platforms where you can go in, it clearly identifies where you need to sign and you're allowed to sign digitally. You and if you have a partner will get different logins and you can both do it independently. So that's a fantastic way of doing it. And then you can have a digital copy of your loan documents to store.

And it doesn't let you move on unless you've filled out all the correct fields, which is great. Awesome.

And what do you need to provide with the loan documents?

So with that, the requirements are different for different states. So in every state except for WA in Queensland, they can be done 100% digitally online. The only thing that you need to provide outside of that is a copy of your insurance certificate of currency that lists the new financier as the interested party. In WA and Queensland, their land titles offices aren't quite as progressive yet and still require wet signed mortgage documents for changing the mortgagee on title.

So you get to print it out?

Yes, print out two copies, sign them, get them witnessed by an actual person.

And then post what you need to interact with somebody. No. And a big thing to know. If you have a partner, your partner cannot witness the mortgage.

Yes. It has to be somebody unrelated to the transaction who's over 18.

Yeah. Yes. Fantastic. So we're providing this tip of currency from your building insurer. We're providing a bank statement.

Yes. Some lenders will require a bank statement for the account that you're going to have your loan repayments taken out of.

Yep. And then if we're in Queensland and where is it, we're doing wet signatures on the mortgages themselves and then anything else.

That's it. And then you send all that back to the solicitor, you'll need to request a discharge form from your current lender. So one of the things that happens with a settlement of a refinance is that the current lender has to discharge the mortgage and the new lender has to settle the mortgage. Now, the current lender will require a signed discharge form to say that that's what you want to do and who they're allowed to talk to about your mortgage. And this now gets done on a system that's called pecsa. PECSA is an online system that basically allows one lender to transfer title to another lender. And so your current lender has. Once they receive a discharge form, they will take three to four weeks to be prepared to discharge your license. If not longer. If not longer. So this is where a lot of holdups happen. So it's important to get that discharge form to your current lender as quickly as possible.

Quite often the incoming lender will be ready to go and then they just wait for up to two to three weeks for the outgoing lender to be. Do they do the PECSA invite? I think it's the outgoing lender that.

Has to invite the incoming lender does the PECSA invite. And the outgoing lender won't accept until they're ready for settlement. So there can be a lot of follow up there.

Would you suggest that applicants potentially send a discharge form earlier throughout the stage? Yeah.

So when you're discharging a loan, you need to be aware that the outgoing lender will lock your account when they're ready for discharge. So if you've got any transactions that run through it, that's going to be an issue. I would suggest that once you've got formal approval from your new lender to send off the discharge form to your old lender.

So hopefully those time frames will marry up at the end.

Exactly right. Because what normally happens is that the solicitor will send out a discharge form with your loan documents and then you send that back to them. They'll. Then there's three to four weeks. Exactly right. So the earlier you can do it the better.

Okay, excellent. All right, so everybody's ready to go for settlement. What happens?

So settlement gets booked in. On the day of settlement, your loan will literally change from your old lender to your new lender. So the old account will close down, the new account will open up, and you have a new bank. The following day, you'll get a phone call or an email or a letter from your new lender with all your bank details and to your new bank.

And away you go. How long does that whole process generally take?

So in a perfect world, three to four weeks. But we don't live in a perfect world. So it depends on the turnaround times of the banks. It can happen in four weeks?

Absolutely.

I would say it would normally happen in six to eight weeks. And then if you're going with one of these banks that have significant turnaround times, you might be looking at five or six months.

Yes, absolutely. And that is definitely not out of the question.

That is not out of the question.

So just something to be mindful of and be prepared for and just have those expectations at the beginning that these things take time. Your broker will do the very best they can to help speed things up. They are very much at the mercy of the lender. And what is happening with that lender at that particular time. If you have a time constraint, it's something that you must discuss with your broker right from the very beginning. And the most important thing that you can do from the client, from the applicant's perspective, is just to provide documents as quickly as possible. If. If a broker has asked you for something, they need that given back to them as quickly as possible so they can help progress your application as fast as they can. I think that's about it. Anything else to add?

No, I think we've covered it.

Wonderful. Thank you again, Chelsea. Great to speak to you.

Thanks for having me.