In recent times I have had a lot of clients ask me why are the banks asking for Genuine Savings and what constitutes as being Genuine Savings. Well banks ceratinly have gone back in time and adopted strict lending practices which is a direct result of the credit crisis and the cost of funds to the bank. Banks are just not prepared to take on any unnecessary risk which has seen them abolished the once ever so popular 110% and 100% loans and gone back to lending upto 95% of the house value (there are a fes exceptions to this) and requiring the deposit to be a minimum of 3% genuine savings and not a gift.
So what are genuine savings:
- an accumulation of funds over a period of time
- the time frame should be 3 to 6 months because this demonstrates consistency in deposits
- depositing lump sums into an accout in the time frame is acceptable
- provides the lender with comfort that the borrower can afford the loan
- in the banks eyes the borrower has "hurt money" to contribute
What are non-genuine savings:
- a monetary gift
- funds borrwed from another bank or money taken from a credit card
- first Home Owners Grant (FHOG)
- proceeds from the sale of an asset like a car
So what is the impact on borrowers:
- it is harder for some first homebuyers to obtain a loan
- some lenders will lend without the 3% but it comes at premium with LMI Insurance being expensive
So are there any hard and fast rules? No but as a rule of thumb 3% would be a minimum deposit required and if your were to go above that you will norrow your selection of lenders down and pay a premium for the product. If you are planning to buy a house in the near future start saving consistently now to give yourself the best possible options.
Our experienced wealth coaches can put into place a strategic cash flow and savings plan to maximise you ability to save and help put you in good stead when it comes time to approach the bank for a loan!
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