Your New Home Deposit
You’ve found the home of your dreams, and you’re ready to start the home buying journey. You may already know that as a borrower, it’s essential to have at least 5% of the property value as genuine savings before you can be considered for a home loan. However, what is defined as ‘genuine savings?’ Hotondo Homes is here to explain the process so there are no surprises when the time comes to apply for a loan.
Home loan deposits explained
In recent years, there has been good news for those looking to get into the property market with little to no deposit. For many Australian lenders, a policy was implemented whereby a borrower was required to prove that at least 5% of their savings was attributed to their own steady savings plan.
What does that mean? In layman’s terms, you had to prove to your lender that you have saved a large portion of your deposit on your own. Why? Having money in your savings account just isn’t enough – your bank needs to see that you have planned and saved for a deposit. It shows that you’re committed and likely to be a good borrower.
While the amount you can borrow varies from lender to lender, when it comes to your Loan to Value Ratio (LVR), it is generally defined as follows:
- Less than 80%: You aren’t required to prove genuine savings
- From 80-85%: Most lenders won’t require you to prove genuine savings
- Above 85%: There is a strong chance you’ll have to prove your savings are genuine
What isn’t considered ‘genuine savings?’
When you apply for a home loan, your lender will request at least three months’ worth of bank statements. If they discover a large deposit of cash, they may ask you some questions. Just a few things that aren’t considered genuine savings include:
- Inheritance
- Tax refund
- Funds from the selling of a personal possession, such as a car
- Gifts
- Personal loan
- Monetary wins
To put it simply, if you’ve fallen into some unexpected money, you can’t use it as a deposit to apply for a home loan.
Think of it like this: if you have received a ‘gift’ from a friend or family member, lenders may think you’ll need to repay it over time. This will in turn affect your ability to manage your future loan repayments. The same is said for personal loans. Remember, it’s not how much savings you have, but rather that you can prove that you can keep up with future repayments.
Fortunately, there are some ways around this, such as using your rent payments to fulfil the genuine savings obligation. For more information, it is a good idea to speak to your lender about your options.
Are you ready to go house hunting?
When you’re ready to build your new home, look no further than Hotondo Homes. With years of experience in the industry and a name that you can trust, we have what it takes to make your dream home a reality. Contact us now to start a conversation on how to get started.
Hotondo Homes is not a registered financial advisory and therefore we recommend you speak to your financial advisor or a mortgage broker to receive expert advice before entering into a real estate contract of sale.
