June 05, 2014
If you are saving for a house deposit, you might be wondering how much you really need before you can ask the bank for a loan.
Peter Hale from Mortgage Choice in North Perth reveals what the banks policy is regarding your savings, and if your hard earned pile of cash is eligible to be used for a house deposit.
Maybe you have heard of the term ‘genuine savings’ before or maybe you haven’t. It’s no surprise if you haven’t because it’s generally considered to be bank lingo , which basically translates to:
“Did you save this money yourself?” & “do you have good savings habits?”
Generally, whenever the bank is assessing a loan application where the loan to value ratio (LVR) is over 80%, and you are paying lenders mortgage insurance(LMI), the bank will want to see evidence of genuine savings.
This means that the bank will want evidence, usually in the form of bank statements, showing that you have been able to save at least 5% of the value of the property you want to buy.
In the case of purchasing an investment property the percentage of genuine savings required can be as high as 10%.
Also the bank will want to see this money has been saved over a period of at least 3 months.
If you wanted to purchase a property in Perth valued at $500,000, you would need to have saved at least 5% of the property value ($25,000) over a 3 month period.
The reason behind this is that the bank wants to make sure that you have good saving habits before they approve you to take on what will most likely be one of the biggest debts in your life to date.
What can be considered as genuine savings
The best form of genuine savings is cash in a bank account saved over the 3 months. However if you have held something of financial value for 3 months as well, it may also meet the banks requirements.
Things such as a term deposit, shares or equity in an existing property can all be considered genuine savings.
Tax refunds, car sales and gifts
One of the common questions we hear from our North Perth mortgage customers is related to a sudden financial windfall.
Often a great tax return, inheritance or gift from a family member might be just the thing to boost your deposit and get you into a house sooner.
While these windfalls are great, they generally would need to be held in your account for 3 months before they will meet the banks genuine savings policy.
What is not genuine savings
While most banks have slightly different policies, it’s generally accepted that any borrowed money, such as a personal loan would not be considered as genuine savings.
Also falling into this category is the first home owners’ grant you might be entitled to if it is your first home.
How you can find out if your savings are genuine
While pretty much all banks have a genuine savings policy, they are slightly different from each other, and the policies and the documents required to evidence genuine savings are ever changing.
If you want to make sure your savings meet the criteria feel free to call Peter Hale from Mortgage Choice in North Perth on 0402 252 150.
Alternatively if you have any questions you can email them to firstname.lastname@example.org
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