The deposit requirements to purchase a property are a common point of confusion for first home buyers.
Which is understandable as a lot of information out there is unclear or just plain incorrect.
In this article I’ll endeavour to clear a few things up which can hopefully assist you getting into tour first home sooner
You need more than 5%
Many buyers assume they only need to save 5% of the purchase price and they are good to go. That’s not quite correct.
While a number of lenders will allow you to borrow up to 95% of a property’s purchase price there are still a range of costs on top of this including:
- Bank fees
- Lenders Mortgage Insurance
- Government charges
- Stamp duty if you are above the concessional limit
These costs can equate to a further 4-5% of the property’s value. So, in reality your savings requirement can be closer to 9-10% once all costs are accounted for.
To provide loan approval a lender will need to see that you have sufficient funds to cover your 5% deposit plus all costs.
If you are seeking to borrow up to 95% of the purchase price then most lender will require that at least 5% of your total funds required for your purchase is “Genuine Savings”.
Genuine savings are savings that you have saved yourself progressively over time from your wages. Before providing a loan, lenders want to see that you have developed a regular savings pattern, consistently putting away a percentage of your income each pay period.
Generally, this 5% will need to be saved over a minimum of 3 months.
Gifts, windfalls, tax refunds, grants, sale proceeds (unless it is sale proceeds from property) do not constitute genuine savings. If this was your only form of savings then you would not qualify for a loan with lenders who require genuine savings.
In this case you would need to seek approval through a lender who had a non-genuine savings policy.
In this situation you have sufficient funds to complete settlement but less than 5% of those funds have been saved from your regular earnings.
Under this scenario you could still qualify for finance if you met either of the following criteria
Rental track record 12 months
Where you can demonstrate a minimum of 12 months satisfactory continuous rental history, and your current residence is leased through a Licensed Property Manager then you may still qualify. Private lease arrangements or leasing from a family member will not qualify, it must be through a licensed agent.
Rental Track record 3 months
Where you can demonstrate a minimum of 3 months satisfactory continuous rental history, your current residence is leased through a Licensed Property Manager and your funds are from the following sources only
- Bonus/Dividend/Commission payment
- Non-real estate asset sale
- Tax Refunds
Then you may also qualify for finance.
Getting advice is critical
Before you start looking for your first home it is critical to have your situation property assessed by a mortgage professional like me who works with a range of lenders that offer different policies that can cater for your situation.
I am able to properly assess your situation and calculate all likely costs associated with your purchase so you can purchase with confidence.
If you only talk to your bank then you will be limiting your options.
It's easy to arrange a Free assessment
Simply go direct to my calendar to book in an obligation-FREE telephone appointment with me. During that appointment I can answer your questions about buying property and advise you what purchase range you can currently qualify for. To make a time simply click this link https://goo.gl/6nqmnm
Have a great day and I look forward to being of help
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