Main points that you need to know before making a decision of buying a house:
· Most lenders require a deposit that is at least 5% of the property price.
· Genuine Savings are savings you have held for at least 3 months
· The larger your deposit, the less interest you’ll pay over the life of the loan
· You can avoid Lender Mortgage Insurace (LMI) costs with a larger deposit
· There are some options for borrowers without a deposit.
What are Genuine Savings:
Genuine savings are regular savings that you have had in your bank account for at least three months. Banks and lenders want to see the pattern of your saving, your regular incomes and your ways of spending.
Note importantly that banks love to know whether you have had worked at one employer for a long time and whether you have a stable income or not. Not any lenders want to lend the money to any risky borrowers or who are not able to make a repayment on time.
For most lenders, at a minimum, genuine savings have to make up at least 5% of property value. Existing equity, stocks and other investments can be classified as genuine savings but it’s important to note the exact requirements for Genuine Savings differ from bank to bank.
What are non-genuine savings?
Non-Genuine savings are viewed as any sum of money you have but haven’t saved over a period of time, 3 months is the standard for most lenders. The most common forms of non-genuine savings are cash from the sale of an asset like a car or house, or cash-gifts from relatives to help purchase a property. Once this money has been in your account for more than 3 months, most lenders will then classify it as genuine savings and it can help lower your LVR.
Advantages of a bigger deposit
The larger your deposit, the faster you’ll pay off your home loan. A larger deposit means that you will have a lower Loan-to-Value (LVR) ratio and you may be able to secure a discounted interest rate from a lender. An additional advantage to having a larger deposit is you will most likely avoid paying the Lenders Mortgage Insurance (LMI). On average, to avoid paying LMI you will at least need to make a deposit of 20% of the value of the house.
What is Lenders Mortgage Insurance?
LMI is the protection (insurance) for lenders in the event of if you are not able to repay your loan and the sale of the property doesn’t cover the outstanding loan balance. If your deposit is less than 20% of your property value, you’re likely to incur a fee called LMI. Because you don’t have a big deposit (bank consider 20% as a benchmark), then you are considered as a “risky borrower” so bank needs some sort of protection for themselves.
What if I don’t have a deposit?
There are a few options for borrowers without deposits saved. Please call me to be consulted on this.