If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments.
We asked Soraya Francke to explain more on how clients can obtain a loan with less than 20% deposit.
Although it can differ, in most cases lenders generally look for consistent additions to savings over a period of at least three months and preferably a year or more.
This means that the following are not considered genuine savings:
- a cash gift
- an inheritance
- casino/other gambling winnings
- proceeds of the sale of a non-investment asset
- government grants and other finance offered as incentives
Can I still get a loan without genuine savings?
“For those who don’t have any genuine savings but still want to obtain finance, there are options”, says Soraya.
- Guarantor loans – Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.
- Other significant assets such as shares, managed funds and/or equity in residential property – Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.
- A strong rental record may see a lender allow you to forgo the genuine savings route – Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.
How to buy without a 20% deposit
Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.
LMI can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. For example, a $500,000 property, brings the deposit down from $100,000 to just $25,000.
Paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may have risen by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.
The insurance premium is generally a one-off payment, but you may be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage.
“I regularly write loans for customers who do not have genuine savings using the aforementioned policy exceptions,” says Soraya. “It’s just a matter of looking at their full situation and knowing which lender is going to have the policies to suit what you’re trying to achieve. This knowledge can only be achieved through experience and keeping in constant communication with lenders to know what their policy niches are.”
Mortgage & Finance Solutions Specialists are experts on the industry and the credit market. Investigating your options and working out whether to buy now or save extra deposit is a decision that we can help you with. Contact us today on 1300 857 762 to find out more.