How to Get a Mortgage in Australia as a Foreigner

Some call it a mortgage, Aussies call it a home loan; whatever you call it, it’s a great way to fund your new home or investment in Australia. However, the process of getting a mortgage as a foreigner isn’t as straightforward as it is for Australians. It’s important to know what you’re getting into and what hurdles you can expect on the way. 

By the end of this guide, you’ll have a solid understanding of what it takes to get a mortgage in Australia as a foreigner. We’ll discuss eligibility, go through the process step-by-step, and see which types of mortgages you can choose.  

Understand Lenders’ Eligibility Criteria

Each lender is different and will evaluate you based on different criteria. There are, however, some standards that are pretty consistent across the board, so let’s see how you fit in. 

Foreign nationals could see a DV surcharge of 7-8% on the loan amount and an additional fee from the FIRB of $42300 if the established property is below 1 million.

Residency Status

Typically, lenders look for stability and continuity, which they gauge through your residency status. For non-residents and temporary visa holders, obtaining a mortgage can come with more restrictions and can affect your borrowing power. If you're a permanent resident or a holder of certain visas that imply a pathway to permanent residency, you're generally viewed as a lower risk, which makes it much easier to secure a mortgage.

Non-residents can still get a mortgage, but you may face higher interest rates and a requirement for a larger deposit, often around 30% of the property's value or more. Additionally, the Australian government requires foreign non-residents to obtain approval from the Foreign Investment Review Board (FIRB) before purchasing real estate in Australia.

Visa Requirements

Lenders in Australia also scrutinize visa types, assessing the length of your stay and conditions tied to your visa. It's crucial to have a valid visa with substantial remaining duration-preferably over a year-at the time of your mortgage application to improve your prospects for approval.

Here’s a list of visas that are looked at favorably by lenders:

• Skilled Independent Visa (Subclass 189): a permanent visa for skilled workers who are not sponsored by an employer, a state or territory, or a family member.

• Skilled Nominated Visa (Subclass 190): this visa requires nomination by an Australian state or territory government.

• Temporary Skill Shortage Visa (Subclass 482): although temporary, it can lead to permanent residency under certain conditions.

• Employer Nomination Scheme (Subclass 186): this permanent visa requires you to be nominated by an Australian employer.

• Partner Visa (Subclasses 820 and 801): this leads to permanent residency and is available for the spouse or de facto partner of an Australian citizen or permanent resident.

Generally, visas that allow extended or indefinite stay with work rights, such as the Skilled Independent Visa (Subclass 189) or the Employer Nomination Scheme (Subclass 186), enhance your borrowing options drastically. Conversely, tourist or temporary visas won’t cut it. 

Income and Employment

Lenders look for steady, verifiable income sources and secure employment, particularly if you are a foreigner. For those employed within Australia, lenders readily accept local income; however, if your income comes from abroad, you might face stricter scrutiny and possibly additional requirements to prove its stability and continuity.

When calculating your borrowing power, you will use between 60% and 90% of your actual income. So it’s wise to either have some money in Australian Dollars, or to earn substantial rental income from Australian real estate.

Self-employed individuals also need to provide a history of income, usually for the past two years, verified by financial statements and tax returns. A solid employment record and reliable income are indispensable when you’re looking to enhance your borrowing capacity and mortgage terms.

Credit History

Your credit history shows your track record of managing debts and financial responsibility in general. For foreigners, lenders can ask to review both your Australian credit score (if you haven’t already opened an Aussie bank account, you should do it ASAP), and international credit histories from all the places you’ve lived. 

If you're new to the country and don’t yet have a local credit history, some lenders may require additional financial documents or references to establish your creditworthiness. You can facilitate a good credit history in Australia by maintaining good financial habits, like paying bills on time and managing credit accounts responsibly.

Age

Mortgages, unfortunately, have a time limit, which means that it’s not in the lenders interest to loan money to individuals who are likely to retire and have a lower income in the near future. Younger borrowers are seen as having longer working lives ahead, which implies more time to repay a loan.

Lenders will closely examine your retirement income plans and potential for sustained income over the term of the loan. The key is proving that you can meet the repayment obligations throughout the mortgage period, regardless of your age.

Property Type

Lenders differentiate between standard residential properties, like houses and apartments, and more unique types like off-plan properties or rural land, each with its own set of lending criteria. Standard properties often come with fewer complications and are therefore more easily financed. 

On the other hand, properties deemed higher risk, like small studio apartments or properties in rural areas, might require a larger deposit and come with stricter lending conditions. This is due to their potentially lower liquidity and because their value is more volatile, unlike in urban areas where value can be predicted with reasonable accuracy. 

Steps to Getting an Australian Mortgage 

Here’s what you can expect out of this process. 

1. Talk to a Mortgage Broker

While this is not a requirement, the smart thing for any investor, especially a first-timer, to do is consult a mortgage broker. They’re professionals who act as intermediaries between borrowers and lenders, and this can completely change the outcome of the whole process. 

Firstly, they can give you expert advice and guidance thanks to their extensive knowledge of the mortgage market, like the latest lending criteria and products on offer. This is especially valuable if you’re not familiar with the Australian lending environment.

Secondly, brokers maintain relationships with a wide range of lenders, many of which might’ve not even been on your radar before. Keeping your needs and wants in mind, they can provide you with loan options and connect you with lenders that can accommodate your specific situation.

2. Obtain Pre-Approval and FIRB Approval

The next step is to seek pre-approval for a mortgage from a lender. You do this by submitting financial documents to verify your income, employment, credit history, and residency status. This step will help you understand your budget and financial limits before you commit to a property. 

Concurrently, if you're on a temporary visa, you'll need to apply for FIRB approval. This is mandatory for all foreign nationals wishing to buy property in Australia, except New Zealand citizens and permanent residents. 

3. Asses Your Finances

Next, you need to conduct a detailed assessment of your finances.  Start by calculating your monthly income from all sources and subtracting your usual expenses to gauge your disposable income. This step is critical to determine how much you can afford in monthly mortgage repayments.

In addition to your regular income and expenses, factor in the initial costs associated with purchasing a property. This includes the deposit, typically between 10% to 20% of the purchase price, as well as stamp duty, legal fees, and loan application fees. Also, there are ongoing costs like council rates, insurance, and maintenance.

As a foreigner, you might be able to borrow up to 70% of the property’s purchase price, with interest rates between 6.50% to 8.00% per annum. On the other hand, if you’re a high net individual, you could qualify for only up to 55%. This is mainly due to the fact that some lenders perceive high-net worth borrowers as vulnerable to market fluctuations, and therefore risky.

4. Save Up for a Larger Deposit

A large deposit when getting a home loan in Australia not only improves your chances of mortgage approval but also potentially lowers your interest rates and monthly payments. It can be a strategic move when purchasing property in Australia, particularly for foreigners who may not qualify for the typical loan-to-value ratios offered to residents.

For non-residents, aiming for a deposit of 30% or more is advisable. For high net-worth individuals, who might be restricted to borrowing up to 55%, saving for a 45% deposit could be necessary. A larger deposit also reduces the overall loan amount, decreasing the risk for lenders and, subsequently, the cost of borrowing for you!

Another good reason to have a hefty deposit is to avoid paying the Lender’s Mortgage Insurance (LMI). If you borrow more than 80% of the property's value, you're typically required to pay LMI, which can be pricey. By saving for a deposit of 20% or more, you can avoid this cost.

5. Compare Mortgage Options

When securing a mortgage in Australia as a foreigner, it's crucial to compare various mortgage options to find the best fit for your financial situation. Start by examining the interest rates, loan terms, repayment options, and any associated fees of different mortgage products. This is where a mortgage broker would come in most useful

Consider fixed-rate versus variable-rate mortgages: fixed-rate loans offer stability with consistent repayments, while variable rates might provide lower initial rates but can fluctuate over time. Also, review the flexibility of the loan in terms of extra repayments or early payoff penalties and calculate the mortgage rates.

6. Submit Your Mortgage Application

Once you've chosen the best mortgage option and gathered all necessary documentation, the next step is to submit your mortgage application. This submission should include your complete financial profile, chosen property details, and any requisite approvals like FIRB consent if applicable.

Ensure that all information is accurate and presented clearly to avoid delays in processing. It's also wise to double-check that your application aligns with the lender’s requirements to increase the likelihood of approval.

7. Await Loan Approval

During this time, the lender will be reviewing your application to verify your financial details and assess your creditworthiness. They will also check the kind of property you’re trying to buy to make sure that the loan is adequate for it. This can take anywhere between a few days to a few weeks.

What you should do during this nerve racking time is maintain a stable financial profile. This means no large purchases or taking on additional debts. Postpone that sportscar purchase for after you’ve gotten your mortgage. 

8. Complete the Loan Settlement

If all went well, you’ll come to the pivotal moment when your lender releases the funds to the property seller, marking the official of the property purchase. Now, the financial commitment begins in earnest as you start to repay the loan according to the terms agreed upon. Make sure all paperwork is in order, and maintain a good line of communication with your lender to ensure a smooth transition to this new phase of homeownership.

Types of Mortgages Available to Foreigners in Australia

Foreigners looking to buy property in Australia have several mortgage options to consider:

Variable Rate Mortgage

This type of mortgage has an interest rate that can change based on fluctuations in the market. It offers flexibility, as the rate can decrease, potentially lowering your payments. However, it can also increase, which means higher payments.

Fixed Rate Mortgage

With this kind of mortgage, the interest rate is locked in for a specific period, typically ranging from one to five years. This is ideal if you like consistency and prefer to budget without surprises, though it might mean missing out on lower rates should market interest rates drop.

Split-rate Mortgage

If you’re unsure about interest rate movements, this kind of mortgage combines elements of both fixed and variable rates. You can decide how much of the loan you want to be fixed and how much to be variable.

Interest-Only Mortgage

In this option, for a set period, usually up to five years, you pay only the interest on the loan, not the principal. In other words, when you make a payment, you’re only covering the interest that accrues on the loan; you’re not reducing the principal amount. 

This results in lower monthly payments initially but higher overall costs long-term because the principal balance does not decrease during the interest-only period. Once the interest-only period ends, you would start to pay off both the interest and principal, unless you refinance or modify the loan terms.

Specialist Non-Resident

Tailored specifically for foreigners and non-residents, these mortgages cater to those who might not meet the typical residency and income verification standards required by traditional lenders. They often come with higher interest rates and require a higher deposit, since the lender takes a higher risk.

FAQ

Are there any additional costs when getting a mortgage in Australia?

Yes. These include stamp duty, application fees, legal fees, and possibly LMI if your deposit is less than 20% of the property value

Do I need to use a mortgage broker?

Although it’s not mandatory, it can be highly beneficial to have someone help you navigate the lending scene and find the best mortgage products suited to your needs. 

Can I use foreign income to qualify for a mortgage in Australia?

Yes, but you may need to provide additional documentation to verify your income, and it may be subject to more stringent scrutiny by lenders.

Conclusion: Kredium Can Make Your Aussie Dream a Reality

Embarking on the journey to finance property abroad can seem daunting. Kredium is here to simplify this process for you.

We offer comprehensive real estate solutions, guiding you through the whole process; finding lenders, securing offers, finding ideal real estate. Trust Kredium to help turn your Aussie dream into a tangible reality, with less hassle and more confidence in your investment.