August 10, 2017
It’s one of the most commonly asked questions by a first-time home buyer.
How much deposit do I need before I can get finance to purchase a property?
Australian lenders have required borrowers to save at least 5% of the purchase price of a property in a bank account in their name.
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.
Also the bank will want to see this money has been saved over a period of at least 3 months.
What is 'Genuine Savings'?
Genuine savings’ is a term used by lenders to define funds that a home loan applicant has saved themselves over time. 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.
If you wanted to purchase a property 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.
Often considered genuine savings:
- Regularly-accumulated savings held over a period of time
- Term deposits (held for minimum of three months)
- Shares (held for minimum of three months)
- Cash gift (held for minimum of three months)
- Inheritance funds (held for minimum of three months)
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.
Not usually considered genuine savings:
- Recent gifts or windfalls
- Sales of other assets (other than property)
- Borrowed funds (e.g. personal loans)
- First home owners’ grants
- Short-term cash savings
Please note: Lenders Mortgage Insurance (LMI) & borrowing costs may apply in addition to the minimum savings requirements, some lenders allow the LMI to be added onto the loan. Other lending criteria will also need to be met.
As of the 1st July 2017, First Home Buyers will obtain;
- an exemption on stamp duty for purchasing a property up to $600,000 or
- a concession on stamp duty applied if the property is valued beteen $600,001 and $750,000.
If you require any further assistance or information give us a call today. We can talk you through the whole process and help you obtain home loan pre-approval, so that you know exactly how much you may be able to spend on your first home.