In circumstances where home loan applicants have 20% or more equity (plus purchase costs) to contribute towards the purchase of a property, they need to only provide evidence of the existence of funds to complete the property purchase.
However, when the Loan-to-Valuation (LVR) ratio exceeds 80% (or 85% for some lenders), Genuine Savings (or equity) of at least 5% must be evidenced at the time of submitting the home loan application.
Most lenders require home loan applicants to have these 5% genuine savings to be saved and held over a period of 3-6 months. This requirement can be a challenge for many home buyers, who have either had no need to save money or for those who have been just able to make ends meet while renting or paying off their existing home loan.
It is essential that home loan applicants should start a savings strategy much ahead in the property purchase cycle. Strategies that you could consider to boost your Genuine Savings include:
• Set up an auto-transfer from your salary account into a high-interest savings account.
• If you have plans to sell a car (or other items) to build your deposit, do it sooner rather than later.
• Retain evidence of your rental payments if the property is leased through a licensed property manager.
Maintaining a Genuine Savings pattern
As an example, to purchase a property worth $300,000, you will be required to show $15,000 in Genuine Savings. (Bear in mind in addition to your genuine savings, you must have funds for the stamp duty, lender’s mortgage insurance and other purchase costs)
Remember … if large lump sums are removed from the account, then the genuine savings period will commence from the next month using the lower balance as the starting point for the savings.
Examples of Genuine Savings
Genuine Savings can include the following:
• Savings held or accumulated consistently in a savings account held in the applicant’s name.
• Term Deposits held in the applicant’s name.
• Equity in residential property owned by the applicant.
• Shares purchased and held by the applicant (in publicly listed companies).
• In some circumstances, it is possible to have historical rental payments or accelerated loan repayments considered as part of genuine savings.
Examples of Non Genuine Savings
The following savings do not contribute towards the Genuine Savings requirement.
• Gifts or inheritance received by the applicant.
• Funds held in an overseas bank account.
• Proposed savings plans or Rental Purchase Plans of any kind.
• Advances on wages or commissions.
• Sale of assets (other than real estate) for example, motor vehicles.
• First Home Owners Grant (FHOG).
• Funds held in the names of parties other than the applicants.
• Funds held in company/business accounts.
• Proceeds of a personal loan.
• Builder’s or vendor’s rebate/incentive.
• Tax Refunds.
We are here to help you achieve your property goals and understanding genuine savings is very important. Call us today on 8342 5688 or a/h on 0421 206 543 or fill out the online form on this page to book an appointment.