Logic dictates that you need to save money for your deposit when you finally buy a house in Geelong or vacant land for sale in Grovedale, Newtown or Clifton Springs.
Irrespective of the size of your regular savings, at least 5% of the property’s cost should come from funds you’ve stored somewhere or invested in something and kept over a certain period.
In other words, gifts from friends and relatives don’t always count as “genuine savings.” The same concept applies to work bonuses, asset sales, tax refunds and inheritances. After all, a windfall is more of a godsend than a fruit of your labour.
Having said all of that, you might think that you’ll be automatically disqualified for a home loan without adequate genuine savings. Well, yes and no. Yes, because most lenders won’t reject your application without proof that you can handle such a large debt. No, because some lenders might be willing to grant you an exemption.
Usually, doing any of the following things could excuse you from genuinely saving funds to build up your deposit for your house purchase.
Pay a 20% Deposit
Lenders won’t accept cash-strapped borrowers as customers. That would be irresponsible. That’s why you could take out a mortgage as long as you could prove that you have the money in your bank account to shoulder a fifth of the property’s price. In short, you’ll only borrow 80%.
With such a large deposit, an ordinary lender would no longer be as curious as to where the funds came from and how long have you had them.
No genuine savings (and just little Lenders Mortgage Insurance) will be required in this case since the risk of absorbing a loss isn’t that significant. The security for the loan, the house and lot, would suffice to help your prospective lender sleep sound at night.
Use Your Rental Track Record
Some lenders find a 12-month rental history with no missed payments an acceptable substitute for genuine savings. Your punctuality is evidence enough that you could manage regular housing payments to keep your roof above your head.
If you’re in luck, you might encounter a lender who’d agree to take a six- or three-month rental history.
However, your name must be on the tenancy agreement. Otherwise, a lender won’t recognise you as the tenant even if the rental payments truly came out of your pocket.
Take out a Guarantor Loan
A guarantor home loan eliminates the need for both genuine savings and a deposit. Its lender will be open to give you 100% of funds or even 5% more.
Why the sudden generosity? It’s because of your guarantor, which generally should be your parents. Your siblings, grandparents and other relatives might be also considered in some cases.
The role of a guarantor is to provide additional collateral in case you default on your mortgage. In such an event, your lender might use your guarantor’s property to cover any losses the proceeds from the sale of your property couldn’t.
The Bottom Line
Every said option is absolutely convenient, especially when you’ve been painfully struggling to save money that comply with the standards of mortgage lenders for a long time. But each comes with its own pitfalls, so exercise due diligence to choose the right direction to take.