Home Loan Deposit
Working out the deposit required can be a bit tricky and varies from lender to lender. Some lenders may offer loans up to 97% of the property value but all will want to see a minimum of 5% genuine savings.
Now don’t be fooled, when you are borrowing 97% of the property value, this includes the capitalisation of Lenders Mortgage Insurance (LMI), which means that in most cases you will require some additional deposit above your 5% as the capitalisation of mortgage insurance will take the loan amount above 97% of the property value. When this happens, the lender will required the additional deposit to reduce the loan amount to 97%, therefore the true deposit required is usually around 5.5% but this is also driven by the loan amount.
When you are borrowing above 90% of the property value, lenders will want you to have 5% genuine savings over a period of minimum 3 months.
It is therefore advisable to open a separate savings account when starting you savings plan for your first house.
What Qualifies as Genuine Savings?
- Regular weekly, fortnightly or monthly contributions into a savings account over a 3 months period.
- Lump sum funds ie Tax return – this must be held in the savings account for a minimum of 3 months
- Shares held for over 3 months
- Term deposit held for over 3 months
- A gift held in the savings account for over 3 months
- Equity in existing property
- Sale of property held in borrowers name
- Sale of Assets (e.g. Vehicle) held in borrowers name
- Tax refunds held in bank account for over 3 months
- Inheritance held in bank account for over 3 months
There are other proof’s of genuine savings that some lenders will accept such as:
- Rent paid for a single property through a licensed property manager for a minimum of 12 months
Keystart is the only lender that requires less than 5% genuine savings but has very strict lending requirements, to see if you qualify please contact us.
As a first home buyer, you also have the option of going down the non-genuine savings path which usually has a maximum loan to value ration of 80%. Anything over this will require you to have a minimum of 5% genuine savings.
What Qualifies for Non-Genuine Savings?
- Gifted funds held in savings account for less than 3 months
- Parental guarantee
- Proceeds from sale of assets
- Government grants (e.g. FHOG)
- Loans to borrow equity
- Windfall gains (compensation, lotto etc)
- Sale discounts on a property for prompt settlement
- Unconfirmed deposit sources
- Bulk savings deposits inconsistent with income
There are many other factors which need to be considered when purchasing a property and obtaining expert assistance will make the process easier.