When applying for a home loan or mortgage for an investment property, you will need to show the bank that you have genuine savings. This means actual savings from your salary, or another form of regular income, to demonstrate to the bank that you are going to be a good borrower, and therefore good customer for them.
This isn’t as simple as having cash in your account and each lender will have its own genuine savings policy, so it’s important to do your homework and ensure that you meet the requirements. This week we’re exploring what genuine savings will mean for you, how much you need to have and some of the other common questions when it comes to showing your lender that you have genuine savings in place.
How much do I need in genuine savings?
The majority of banks and lenders will require at least 5% of the purchase price in genuine savings. The remainder of your deposit that you’re contributing towards the property can come from anywhere else, such as gifts, the sale of other assets such as shares or other cash that you have on hand. As an example, if you’re purchasing a property for $500,000, then you will need to demonstrate to the bank that you have at least $25,000 in genuine savings.
Does a deposit I’ve already paid count towards my genuine savings?
When you’re purchasing a house and land package, you will often be required to pay a deposit for a new house and land package. This can be counted towards your 5% genuine savings providing the following conditions are met:
- That the deposit has been held by the builder for at least 3 months.
- That the deposit was in your bank account and paid from this account, and was not borrowed.
Will I pay a higher interest rate for a 95% loan?
If you are borrowing under a 5% deposit loan structure, this means that you’re borrowing 95% of the property’s value. As long as you can demonstrate that you have genuine savings, then you will not be penalised with a higher interest rate. In many cases, you will however need to pay Lender’s Mortgage Insurance (LMI), which you can read about here. This is typically payable whenever you borrow more than 80% of the property’s value.
Can I use the First Homebuyers Grants or Homebuilder Grants as genuine savings?
In short, no. Most lenders will not allow you to borrow money from them unless you have 5% in genuine savings. While you may be eligible for the Homebuilder or First Homebuyers grants, they are not guaranteed, and as a result, while it can reduce the amount you’re required to borrow from the bank, they can not be used to cover your 5% genuine savings requirement.
If you have any questions about applying for your first home or next home, and want to develop a strategy to ensure that you meet the genuine savings requirement, please feel free to reach out to our team of mortgage brokers at Loansuite.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.