Struggling to convince the bank to give you a home loan? You may be pleasantly surprised to read this piece of good news.
Many prospective buyers are left stumped by the requirement to provide evidence of genuine savings, but this situation is beginning to change.
According to Smartline, those buyers that have the ability to service a home loan, but haven’t had the time or opportunity to save a deposit, some lenders are beginning to relax their requirements for genuine savings.
A long-time stalwart of the mortgage application process, the requirement to show that you had built up a strong level of savings consistently over a period of time was relaxing before the GFC kicked in, but lenders are once again reconsidering this strict approval hurdle.
According to Smartline managing director Chris Acret, some lenders have now started to relax their requirements.
“If you have to borrow more than 80 per cent of the value of the property, you will need to take out Lenders Mortgage Insurance (LMI) which protects the lender in the event that you default on your home loan,” he said.
“The providers of LMI are very risk adverse and have become even more so as a result of the GFC, which means they are insisting that the banks only lend to those with a genuine savings history.”
“But in recent months, some lenders have started to relax, or ‘normalise’ their requirement for genuine savings.
“While this is not so much a move being made by the ‘Big Four’, we have certainly seen some of the smaller lenders start to loosen up somewhat on a genuine savings requirement.”
What this means is that ‘non-genuine’ savings – such as a gift from your parents, an inheritance from a grandparent, a large tax return or some form of windfall – are starting to be considered as an alternative to ‘genuine savings’ when it comes to assessing an applicant’s ability to raise a deposit.
Extra costs
Acret pointed out, however, that – while some financial institutions will lend to borrowers with no genuine savings at all – you may be required to pay a ‘risk fee’, incur extra charges or pay a higher interest rate.
“There is a lot to be said for genuine savings, as it does create that money management skill and discipline,” said Acret.
“If you find it difficult to save a reasonable deposit over a period of time it does prompt the question as to whether you’re ready for a mortgage.
“However, most people are better off at paying off debt than saving, so it might be that the non-genuine savings loan is still an option.”
Rental payments also considered
For those who have been renting for a period of time, Acret explains that a couple of lenders will now consider rental payment history in your loan application.
For example, if you’ve been paying $500 a week in rent for six months, that $13,000 can be recognised as genuine savings. However, this doesn’t count as your deposit, as you generally still need to have the funds to pay a 5% deposit.
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