How much deposit you have is not the only question home loan lenders will ask. They also want to know where the deposit came from and how long you have had it for.
Lenders are looking for evidence of genuine savings.
Different lenders have different definitions and policies around genuine savings. The general rule, however, is if your home loan is between 85% and 95% of your property value then the lender requires you to demonstrate a minimum of 5% genuine savings.
Let’s work with an example.
A home valued at $400 000. For most lenders, if your deposit was less than $60 000 then you would need $20 000 of your home loan deposit to be from genuine savings.
Lenders want to see that you have an ability to pay back your loan so they look at your genuine savings as an indicator of the way you manage your finances.
Some examples of genuine savings include
- Funds that are deposited regularly in a savings account
- Lump sums that are held in a savings account for 3+ months
- Term deposits that are held for 3+months
- Shares that are held for 3+ months
Some examples of what is NOT considered genuine savings
- First Home Owners Grant
- Tax Refunds
- Funds from the sale of a vehicle
- Gift or inheritance
- Any borrowed funds
The funds must be held in an account of at least one of the borrowers of the loan. If they are held in a joint account and the one of the parties is not being part of the new home loan then they may not be considered.
Further complicated policies apply to how rent is considered. If you have a 5% deposit but it does not come from genuine savings and you can demonstrate that you have a clean rental history with a real estate agent for more than 6 months then some lenders will consider your home loan application.
Let’s go back to our example.
1. If you have $18 000 saved through regular deposits into a saving account and are expecting a $2 000 tax return you have not met the criteria for 5% genuine savings and will not be able to apply for this home loan.
2. If you were gifted $18 000 from family and you have a rental history of more tham 6 months you also would not be able to apply for the home loan as you still require the 5% deposit.
It is complicated but the criteria around genuine savings serve two purposes. One to indicate to the lender that you have a saving history and secondly for the lender’s mortgage insurer.
If you default on your loan the lender must present to their insurer that you met the criteria as a low risk client and they require evidence of 5% of savings history to demonstrate this.
The genuine saving criteria is different again for investment loans.
If you would like to learn more about genuine savings and what you require to be successful when applying for your home loan, call us today on 5559 2563 or come in for a chat. Mortgage Choice in Mudgeeraba is conveniently located in Bell Central just 5 minutes from Robina Town Centre.