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Getting a home loan in Australia involves six key steps: saving a deposit, understand your borrowing capacity / getting a pre-approval, finding your property, submitting a formal application, receiving final approval, and settling the loan. The process typically takes 2 to 8 weeks from application to settlement, though preparation should start months earlier.
This guide walks through each stage of the home loan process, what documents you will need, and how to set yourself up for success. Whether you are a first home buyer or refinancing, understanding the process helps you move faster and avoid common pitfalls.
The Home Loan Process at a Glance
Here are the six stages of getting a home loan in Australia:
- Save your deposit: Aim for 20% plus costs to avoid LMI; minimum 5% genuine savings
- Get pre-approved: Understand your borrowing capacity before house hunting
- Find your property: Make an offer, ideally conditional on finance
- Submit formal application: Provide full documentation to your lender
- Receive final approval: Lender assesses your application and values the property
- Settlement: Funds are transferred, you receive the keys
Let us walk through each step in detail.
Step 1: Save Your Deposit
Your deposit is the foundation of your home loan application. The more you save, the better your loan options and the less you pay in fees.
How Much Deposit Do You Need?
- Ideal: 20% plus costs (stamp duty, legal fees). This avoids Lenders Mortgage Insurance (LMI) entirely and gives you access to better interest rates.
- Minimum: 5% genuine savings plus costs. Savings below 20% attract LMI, which increases your total loan cost.
What is Lenders Mortgage Insurance (LMI)?
LMI protects the lender (not you) if you default. You pay for it, but it offers you no protection. At 95% LVR, LMI can cost 3% or more of the loan amount. It is added to your loan, increasing your repayments and total interest. There is no refund if you refinance or pay off early. Every extra dollar you save towards your deposit reduces LMI costs.
Ways to avoid LMI: Save 20% deposit, use a parental guarantee or family pledge arrangement, or access professional exemptions (available to doctors, lawyers, accountants, and some engineers at certain lenders).
Step 2: Getting a Pre-Approval
Pre-approval (also called conditional approval or approval in principle) gives you an indication of how much you can borrow before you start house hunting.
What Pre-Approval Actually Means
Here is what most people are not told: a pre-approval is not a guarantee of finance. The lender can still decline your application when you find a property, particularly if your circumstances change, the property does not meet their criteria, or their lending policies tighten.
That said, pre-approval is still useful because it helps you understand your realistic budget, identifies any issues with your application early, and shows vendors and agents you are a serious buyer.
How to Get Meaningful Pre-Approval
For pre-approval to mean anything, you need to submit a full application with complete documentation. Anything less, such as an online calculator or a quick phone conversation, gives you misleading guidance about your borrowing capacity.
Important: Most pre-approvals expire within 90 days. Any special rates or offers you applied for may no longer be available after expiry.
Step 3: Gather Your Documentation
Document gathering is often the most time-consuming part of the process. Having everything ready speeds up your application significantly.
For each borrower:
- Two recent pay slips
- Most recent PAYG summary (group certificate)
- Twp years of individual tax returns and ATO Notice of Assessment
- Identification documents (drivers licence, passport)
- Three months statements for all credit cards, savings accounts, and transaction accounts
- Six months statements for any existing home loans, personal loans, or car loans
- HECS/HELP statement (if applicable)
- Three months statements for shares or managed funds (if using as part of deposit)
- Three months rental statements (if you own investment property)T
Additional Documents for Self-Employed Applicants
- Two years of business tax returns (unless sole trader)
- Two years of business financials (P&L and Balance Sheet)
Tip: Using modern brokers such as Monetas that use open banking tools eliminates the need to collect bank documents and significantly reduces the effort for document gathering.
Step 4: Find Your Property and Submit Formal Application
Once you have found a property and signed a contract (ideally conditional on finance), contact your broker or lender immediately to convert your pre-approval into a formal application.
What You Need to Provide
- Full copy of the signed contract
- Fulfill any loan conditions
- Copy of the deposit receipt
- Updated documents if your pre-approval is more than a month old
Important note on insurance: Take legal advice about when to insure the property. Most people think they do not need insurance until settlement, but if something happens to the property once an unconditional contract is signed, you may be at risk. Almost all lenders require proof of insurance before they will advance funds.
Step 5: Final Approval
After you submit your formal application, the lender will review your documents and may request additional information. The approval stages are:
- Conditional approval: The lender has reviewed your financials and is satisfied, subject to property valuation and any other conditions.
- Valuation: The lender arranges a valuation of the property.
- Formal (unconditional) approval: All conditions are satisfied. The lender issues loan contracts.
- Loan contracts: You receive, review, sign, and return the loan documents. Consider getting legal advice before signing.
Once the signed contracts are returned and checked, the loan is certified ready for settlement.
Step 6: Settlement
Settlement is the day the property officially becomes yours. The lender transfers the funds, the title is transferred to your name, and you receive the keys.
What Happens on Settlement Day
Your lender (or their settlement agent), your solicitor or conveyancer, the vendor's solicitor, and the vendor's lender (if applicable) coordinate to exchange documents and transfer funds. Most settlements in Australia are now conducted electronically through PEXA.
You will know everything has gone through when your solicitor or broker contacts you to confirm settlement is complete and keys are available for collection.
After Settlement: Do Not Set and Forget
Once your home loan settles, itis natural to want to relax and never think about your mortgage again. Lenders frequently increase rates for existing customers while offering better deals to new borrowers. This is sometimes called the 'loyalty tax'. A few quarters down the track, your once-competitive rate may be far from the best available.
How to Stay on a Competitive Rate
- Review annually: Check your rate against current market rates at least once a year.
- Ask for a better rate: Contact your broker/lender and ask them to match competitor offers.
- Consider refinancing: If your lender will not budge, switching to a lower-cost loan can save thousands.
- Use ongoing monitoring: Some services, like home loan optimisers, monitor your rate continuously and alert you when better options become available.
The borrowers who pay the least over the life of their loan are not those who found the best deal once. They are the ones who keep optimising.
Frequently Asked Questions
How long does it take to get a home loan approved?
From formal application to unconditional approval typically takes 2 to 8 weeks, depending on the lender, the complexity of your application, and how quickly you provide documentation. Settlement usually occurs 2 to 6 weeks after approval, depending on your contract terms.
What deposit do I need for a home loan in Australia?
The minimum is 5% genuine savings plus costs, but this triggers Lenders Mortgage Insurance (LMI). To avoid LMI and access better rates, aim for 20% plus costs.
Can I get a home loan with bad credit?
It depends on the nature and age of the credit issues. Some lenders specialise in borrowers with impaired credit, though rates are typically higher. A broker who searches across many lenders can help identify options.
What is the difference between pre-approval and formal approval?
Pre-approval is an indication of how much you can borrow, based on your financial situation at the time of application. It is not a guarantee. Formal approval is granted after the lender has assessed a specific property, completed valuation, and verified all documentation.
About Monetas
Monetas is an Australian home loan optimiser that helps borrowers reduce the long-term cost of their home loan. We compare loans from 80+ lenders, including those who don't pay broker commissions. We also have ongoing rate monitoring so your loan is competitive over time. If you find a better deal, we'll match it or pay you $1,000; see our savings commitment for all terms and conditions.
Ready to find your home loan? Get a free total-cost comparison from Monetas in under 5 minutes. No obligations, no fees to you.
Disclaimer: This guide provides general information only and does not constitute financial advice. Your situation may require additional steps or considerations. Credit criteria, lender policies, and government schemes may change.
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