In the past, borrowing from the banks meant having a stable income, a strong employment history and at least 5% genuine savings. Not anymore!
Whilst some banks are more conservative in their lending policies, we know lenders that waive the requirement for genuine savings, allowing you to contribute a 5% deposit from various sources. This is great news for those of you who may have parents wishing to gift them a deposit.
So if you want to borrow 95% of the purchase price, read on to find out which banks are most suitable for your situation and what the banks will accept as a deposit.
In order to qualify for a 95% LVR loan with no genuine savings, you must meet the following criteria:
- Clear credit history with no defaults on your credit file
- The security property must be readily saleable and not an unusual property type</li>
- You must have a low level of unsecured debt
- Your income must be sufficient to cover the loan and interest repayments.
- Employment stability
Note: there are no exceptions to this policy for 95% LVR loans.
Think you may have difficulty qualifying? Our mortgage brokers can help. Speak to us today on 1300 889 743 or enquire online and our expert team will get back to you.
No genuine savings
Whilst no genuine savings loans were available, lenders previously did not offer 95% LVR loans without any genuine savings. However, now individuals can borrow up to 95% of the property value with the 5% deposit that can come from a variety of sources.
If you have received the First Home Owners Grant (FHOG) you can use a percentage of that to put toward a deposit, provided you save 2-4% of the deposit on your own. Some banks accept an inheritance and even commission income.
Gift as genuine savings
The easiest way to get a deposit for your home loan is to receive it as a gift from a family member. It is quite common for parents to gift their children a lump sum amount so that they can purchase a house.
For example, if your loan is $300,000 and you do not have any savings of your own, your parents can gift you $15,000, so that you can use it as a 5% deposit, in order to borrow 95% of the property value.
Your parents must complete a gift letter, sign it and supply it to the banks, to evidence that it is a gift and not a loan. Some lenders may also require you to fill out a statutory declaration and ensure that the funds have been deposited into the account.
Have you received a gifted deposit? Call us on 1300 889 743 or enquire online to apply for a home loan today.
A deposit from other sources
If the deposit has not been gifted but has come from the sale of an asset or acquired through bonus income, it will be accepted by most banks.
Some banks can also consider a personal loan, as a deposit. Although this is assessed on a case by case basis and the banks will only approve you if your asset position is strong, you have a great income and a clear credit history. Sounds great right! But what about the interest rates?
Interest rates on non-genuine savings loans
Although you have no made any savings of your own, most banks and lenders offer the same interest rate for non-genuine savings loans, as they do for genuine savings. For those that are borrowing 90% of the property value, the rates are usually the same.
Most lenders can offer competitive deals, recognising that no matter where you obtained your deposit from, your income and employment stability are sufficient indicators of your ability to repay the loan, despite the fact that you have not evidenced the ability to make consistent savings.
Speak to our specialist mortgage brokers on 1300 889 743 or complete our free assessment form to get in touch with a broker who will ensure you get a highly competitive loan package.
When applying for a home loan, the genuine savings criteria of most banks was complicated and tricky. Most banks would only allow individuals to borrow if they had 5% genuine savings.
Some lenders would only accept savings that had been held in an account for 3 to 6 months as genuine savings, equity in an existing property or shares.
This conservative view of what classified as ‘genuine savings’ for the purposes of getting a home loan, was restrictive and resulted in many people failing to qualify for a home loan. This is because the banks want to see that borrowers have the discipline to save money and manage their finances responsibly.
Lenders Mortgage Insurance (LMI) is one of the biggest added costs involved when you borrow an amount over 80%. The insurance premium that you pay is necessary to protect the bank against the risk that you default on the loan.
The best thing about a 95% non-genuine savings home loan is that the lender will allow you to borrow the amount needed to cover the LMI premium.
This means that although you are borrowing 95%, you can actually borrow the extra 3% needed to cover the LMI premium. Therefore, the banks actually lend you 98%.
Whilst the interest rate is competitive, the LMI premium charged is 25% higher than that which applies to a regular loan.
So why should you apply for non-genuine savings loan?
You can use a gift from your parents, a personal loan, inheritance and a number of other sources to put toward a deposit.
The interest rates are great and you can capitalise the LMI! The new lending policy has eased the process of borrowing 95% LVR and introduced flexibility to the lending market.
Ready to apply for a 95% LVR loan or wondering whether you will qualify? Contact our mortgage brokers on 1300 889 743 or enquire online today!