The lending life cycle of loans is broken into the following key stages, from application to discharge and refinance.
- Application: the processes around applying for a loan
- Credit Processing: the lender’s processes to evaluate your application
- Approval: the processes the lender undertakes to approve your loan
- Documentation: the processes the lender goes through to provide you with the loan documentation
- Settlement: the processes the lender undertakes to provide the loan funds to you
- Repayment and Transactions: the processes you and the lender go through to make and record the ongoing payments and transactions on the loan
- Discharge and Refinance: the steps taken by you and the lender to repay the loan, either by you finding a new lender and refinancing, or by repaying the loan with your own funds, or the sale of the property
When you refinance a loan, the process begins again at application. Let’s look at each stage in a brief overview.
Stage 1: Application
At this stage you have chosen a lender and a loan type, most likely by comparing a number of options. You have confirmed how much you need to borrow and when you need the money.
This is really important, especially if you are purchasing a new property. You will now have submitted an application either directly with the lender or through a mortgage broker.
Stage 2: Credit Processing
The credit processing stage is where the lender makes the decision whether to approve or decline your application. Generally, most lenders use a credit scoring system to confirm you meet their requirements, along with a credit check and a valuation of the property you are buying or refinancing.
Stage 3: Approval
The approval stage involves the lender confirming you are approved, the interest rate you will be charged, and any fees that will be applicable.
Stage 4: Documentation
The documentation stage involves you receiving and signing the loan documents, including the mortgage and any other forms the lender may require.
Stage 5: Settlement
The settlement stage involves the lender advancing the money and the loan commencing. You will pay any government fees and charges, and if purchasing the property, the title will be changed to your name. The lender’s mortgage will be registered against the property title.
Stage 6: Payments and Transactions
During this stage you manage your loan, making repayments and other transactions. You will be charge interest and fees and receive statements and notices from the lender.
Stage 7: Discharge and Refinance
At some point in the future you will want to sell your home to buy a new property, or just change lenders. This process is called a refinance. The first step is to have your new loan approved, then ask your existing lender to discharge their mortgage. Your existing lender will provide you with a payout figure. This is the amount you need to pay the lender to close the loan.
How long will it take to get your loan approved?
While there is no industry-wide service standard for loan approvals, generally your home loan approval usually takes around two weeks. The process goes through a number of steps, as follows:
You have completed the application with the lender and your loan is approved in principal. This approval is subject to a number of conditions being met and additional documentation being provided.
Usually these conditions are confirmation of your employment and income and a valuation of the property. In this step the lender has completed a credit check and confirmed serviceability based on the information you have provided.
However, the lender has generally not verified this information and may be waiting on other evidence to move forward, such as evidence of deposit, loan repayment history, details of any adverse defaults in your credit check file, or LMI approval. A conditional approval may be provided in as little as a few minutes or as long as forty-eight hours.
By this step the lender will have verified all your application information (employment, income, credit check, property valuation, and LMI if applicable). This can take some time, as the lender will need to contact your employer and complete a valuation of the property. These processes can usually be completed within a maximum of two weeks but usually within a five to six day period.
This is the process of applying for a loan before you have found the property you wish to purchase. If you requested a pre-approval, the lender will complete all the verification steps other than the property valuation and LMI application.
Pre-approval gives you the opportunity to confirm how much the lender is willing and able to offer you as a loan. However, you must remember that the property valuation is the key to determining how much you can borrow.
You may have a pre-approval for a set amount, but that is still subject to the valuation of the security property. In recent years lenders have been able to provide conditional approval very quickly, often within twenty-four hours, and in some cases within just a few hours.
The unconditional approval still requires verification of key details, including a valuation of the property. While some lenders are using automated valuations, many still require a valuer to go to the property. This can mean waiting for the vendor of the property to allow access and another day or two for the report to be written.