In cases where loan to value ratio is above 90%, lenders want to see that the 5% deposit has been held for at least 3 months in a bank account, accumulated over a minimum of 3 months or received and held for 3 months. This is referred to as genuine savings.
If you are one of the lucky few who have received an inheritance from a grandparent or if your 5% deposit comes from a gift from your family, sale of a non-real estate asset, bonus, dividends or commissions from work, a tax refund or sale of a car, you will need to have the funds sit in your account for at least 3 months to establish genuine savings.
But what if you want to purchase a property today and the 3 months savings history for the 5% deposit has not been established yet?
If you have been renting for the last 12 months, there are several lenders that will consider rental history as proof of genuine savings even if the 5% deposit has not been saved for 3 months. These lenders recognise the difficulty of you paying rent and saving for your home deposit at the same time.
It is important to understand that the 12 months of rental history, irrespective of the amount, will satisfy the requirement for genuine savings. This rental amount does not need to equate to 5% of the loan amount and the borrower still needs to provide adequate funds to complete the loan.
To qualify for the non-genuine savings with rental history loan, you need to provide a letter or a rental ledger showing 12 months of rent history from a licensed property manager or agent. The letter or ledger should contain the following.
Full name of tenant/s as per tenancy agreement
Commencement date of tenancy
Amount of rent paid per cycle (weekly, fortnightly, monthly)
Confirmation of satisfactory rental payment history
"Rent payments only applies to tenants currently renting who are the borrowers of the home loan. Family or private rental arrangements are not considered."
Scenario for First Home Buyers in Sydney with Non-Genuine Savings Deposit and Renting for 12 Months
Our first home buyers in Sydney wish to purchase a block of land for $350,000 and build for $300,000. They have been renting for more than 12 months and can provide a rental ledger as proof. They manage to put together $32,500 from different sources – parents’ gift, sale of a motor vehicle and tax refund. The mortgage broker has assessed the First Home Buyers income, liabilities and expenses making sure that they can afford the repayments for a loan of $617,500. There are lenders that will consider the non-genuine savings nature of the deposit as long as the first home buyers can provide proof that they’ve been renting for at least 12 months.
The question is if there are sufficient funds for the First Home Buyers to purchase the land and build?
In this scenario, the land price of $350,000 will not attract stamp duty and the First Home Buyers are qualified for the $10,000 First Home Grant because the combined price of the land and cost to construct is less than $750,000. But there are other fees to consider such as conveyancing fee (between $900 to $1,500), government fees estimated at $328.50, land taxes and the lender’s application fee. These fees will have to be shouldered by the buyers. Loan mortgage insurance is another fee that first home buyers need to consider. The premium varies from lender to lender.
If you want to know how much deposit you need, how much you can borrow and how much the loan mortgage insurance premium will be, call us at 0430 144 008 or email us at email@example.com or enquire online.
Scenario for First Home Buyers in SYDNEY or MELBOURNE purchasing an Established Home with Non-Genuine Savings and Renting for 12 Months
Customer wishes to purchase a property for $600,000. They require $30,000 as funds to complete the sale. They have been renting for 12 months at $400 per week ($20,800 per year). The customer’s parents have offered $30,000 as a gift to assist and additional cash to cover stamp duty to assist with the purchase.
Has the Non Genuine Savings conditions been satisfied by rental? Yes
How? The 12 months rental history satisfied the conditions for genuine savings. What borrowers need to show is that they can actually afford the monthly repayment for the loan of $570,000. A mortgage broker can calculate your borrowing capacity to find out if you can afford the monthly repayment.
Is there stamp duty to be paid? If you are a first home buyer in Sydney, you don’t pay stamp duty for purchases up to $650,000. First home buyers in Melbourne don’t pay stamp duty for purchases up to $600,000.
Scenario for First Home Buyer in MELBOURNE with Non-Genuine Savings and Renting for 12 Months
First home buyers wish to purchase a block of land for $300,000 and build for $250,000 in Melbourne. We all know that prices of properties in Melbourne are less expensive than in Sydney. They have been renting for more than 12 months and can provide a rental ledger as proof. They managed to put together $27,500 in deposit from different sources – parents’ gift, sale of a motor vehicle and a tax refund. The mortgage broker has assessed the first home buyer’s income, liabilities and expenses making sure they can afford the loan repayment for $522,500.
Will first home buyers in Melbourne have sufficient funds to purchase land and to build?
Melbourne is different from Sydney. Even if the stamp duty exemption in Melbourne for first home buyers applies to homes less than $600,000, the stamp duty will need to be paid upfront when land settles. Only when the build completes will the first home buyer get the full stamp duty refunded. In this scenario, the first home buyer will need to come up with $11,370 to cover stamp duty plus other costs such as mortgage registration fee of $114.90 and transfer fee of $1,298. Below is a list of fees and deposits to purchase a $300,000 block of land in Melbourne.
5% Deposit $15,000
Stamp duty $11,370
Mortgage registration fee $114.90
Transfer fee $1,298
Conveyancing fee $1,000
Total cost to purchase land $28,782.90
Loan mortgage insurance is another fee or cost that first home buyers need to consider. The premium varies from lender to lender and is only paid one time. It is important to understand that LMI offers protection to the bank in the event that the borrower cannot pay back the home loan. Customers will remain liable for any unpaid portion of the loan. In this scenario, LMI will need to be shouldered by the borrowers.
Are there other options for first home buyers without genuine savings?
Parents can provide their home as security by using the equity of their home to fund the 20% deposit for the kids’ home. This is known as Family Pledge.
There are a few lenders in our panel who will lend up to 90% of the value of the security even if the 10% deposit has not been genuinely saved.
Originally published November 5, 2018 8:00:00 AM, updated 06 February 2019