Everyone knows you need a deposit to get a home loan, but fewer people realise that the deposit must meet certain requirements and in many cases must be considered as genuine savings.
Lenders want to know how your deposit was acquired – did you save it yourself? Was it gifted to you? For lenders, this is an important indication of whether you are capable of the consistent ongoing savings required to repay a home loan.
If you are borrowing more than 80% of the property value, most lenders require proof of genuine savings. In other words, you will need to show evidence that over time you have been able to save at least 5% of the value of the property (or more if you are purchasing an investment property).
Any money your family gives you to help with a home loan deposit must meet lender requirements
Money that is gifted is usually termed as a ‘non-genuine saving’ because you have not saved it up yourself over time. For it to be considered as a genuine saving that counts towards your home deposit, it needs to sit untouched in a saving account for a least three months (or more). Some lenders, but not all, allow gifted money if parents put in writing that their money is a gift and they do not expect it to be repaid. You must be able to provide evidence that you have the funds available to you.
Savings in a redraw account may not be considered as genuine savings
Not all lenders accept redraw accounts as proof of genuine savings because lenders prefer to see that you have a savings account connected to your everyday banking from which you can show transactional proof of savings and from which money is not withdrawn.
For rent to be considered as genuine savings, your lease should be from a registered real estate agent
Some lenders may consider rental payments as partially meeting genuine savings requirements but they will often add extra conditions, such as a licensed property agent must manage your property, and that you have lived there for a minimum of 12 months.
Lump sum deposits over time don’t demonstrate your ability to save
Lump sum deposits such as commission income, bonuses, or money from the sale of a car or other asset are not viewed as genuine because they don’t show your ability to repay on a regular basis.
A non-genuine savings home loan product is not always the best solution if you don’t have enough genuine savings for a deposit
Non-genuine savings home loans are offered to borrowers who have a non-genuine deposit but don’t want to wait the required three months. These products are convenient but keep in mind they usually come with higher fees and interest rates, which could increase costs over the life of the loan.
Want to know more? Contact your mortgage broker who can talk to lenders on your behalf and advise you of the best course of action for your individual situation.