Most lenders who are providing a home loan with a high borrowing percentage will assess a borrower’s capability through a measure that is called ‘genuine savings’. Basically, genuine savings displays a person’s capacity to consistently grow funds saved from a genuine source over a period of time. This indicates an ability to make a proposed home loan repayment, when assessed against net income after expenses. Commonly, genuine savings that amount to 5% of the purchase price are to be held and accrued in account over 3 months, for any borrowings over 85% – 90%.
Bernie Lewis Home Loans often receive enquiries relating to using rental history as a form of genuine savings, especially in the case of a deposit being gifted or borrowed from another source. The great news is that we do have lenders on our panel that will accept clean rental payment history over a 6 – 12-month period in lieu of savings deposited to a bank account. Typically, a tenancy agreement must be managed through a licensed property manager, with privately managed properties excluded from most policies.
It is a sensible idea to also save any shortfall (with a small buffer) between rental payments and the proposed home loan repayment over the same period of time. For example, if your rental payment is $1,600 per month and the proposed loan repayment is $2,400 per month, then look to save an additional $1,000 per month if you have the capacity to do so. This isn’t required for every lender that accepts rent as genuine savings but can increase the odds of a loan approval through a wider choice of lenders. This is where preparing for a home loan application with a broker in advance is really important.
Nowadays Australian first home buyers have far greater capacity to purchase owner-occupied property with a smaller deposit, largely due to home buyer assistance options provided by Federal and State Governments. For eligible applicants, deposit support can be obtained through the Home Guarantee Scheme, First Home Owner Grant, HomeStart (SA), and Stamp Duty Exemptions (available in South Australia, Victoria, New South Wales and the ACT). This can reduce the deposit contribution for a first home buyer to as little as 2%-5% of a property price, with capacity to also avoid paying Lender’s Mortgage Insurance.
It’s important to note that not all lending scenarios fit into the one box, for example a First Home Buyer who has the luxury of a family guarantee, may find themselves avoiding a genuine savings assessment. To get a clear understanding of your potential to purchase, simply chat to a Bernie Lewis Home Loans Mortgage & Finance Broker about your savings, rental history and plans to purchase.
*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice.