What are the benefits of a ‘favourable purchase’?

Any general questions you might have in regards to loans and finance.
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Otto Dargan
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Re: What are the benefits of a ‘favourable purchase’?

Post by Otto Dargan »

Hello gangnam.

Welcome to the forums.

With a favourable purchase, you may be able to enjoy certain benefits like:
  • Putting money into your parents’ pocket - You will be paying off the mortgage for your parents enabling them to save more.
  • Not needing a real estate agent - This will save even more money for your parents.
  • Not requiring a Contract of Sale - Although you do not need a Contract of Sale, it is advisable to talk to a solicitor about this.
  • Avoiding a gift tax - You would need to pay this if you were inheriting the property as a gift.
  • Getting instant equity - The lower the purchase price as compared to the market value, the more equity you will have which you may be able to release for investment purposes.
  • Not needing a second security - Unlike a guarantor loan, there is no need for a second security for a favourable purchase.
Please note that there are different provisions related to how much you may be able to borrow. If you’re planning on borrowing:
borrow
  • 90% of the property value then you don’t need to have any genuine savings.
  • 95% of the property value then you’ll need at least 5% in genuine savings, and lenders mortgage insurance (LMI) will also apply. LMI is a one off fee charged by the lender when borrowing over 80% of the property value.
  • 105% of the purchase price then some specialist mortgage brokers may let you borrow the full property value as well as the associated costs such as stamp duty and other fees.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: What are the benefits of a ‘favourable purchase’?

Post by Otto Dargan »

Hi gangnam,

In the case of most banks, savings held or accumulated over 3 months is generally accepted as genuine savings.

Additionally, the following may also be accepted as genuine savings:
  • Term deposits that you’ve held for 3 months or more.
  • Shares or managed funds that you’ve held for 3 months or more.
  • Equity in real estate, but this may vary from lender to lender.
  • If you’ve been renting for the last 3 months then some exceptions may be applicable.
If your deposit is from any of the following sources then it won’t be considered genuine savings:
  • Gifts and inheritance.
  • Savings plans and tax refund.
  • Bonuses and lump sum deposits.
  • Sale of car or other assets.
  • First Home Owners Grant (FHOG).
  • Funds from business account.
  • Borrowed funds such as a personal loan.
  • Developer’s or builder’s rebates / incentives.
Please note that some banks and lenders may request a 6 months saving history instead of the regular 3 months that most lenders require.

You can use our Genuine Savings Calculator to get an estimate of the amount of genuine savings you may need, but note that it should only be used as a guide.

You can learn more about this on our website. You can also talk to one of our credit specialists directly by calling us on 1300 889 743 or by filling in our free assessment form.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: What are the benefits of a ‘favourable purchase’?

Post by Otto Dargan »

Hi rickieg,

There are actually two provisions if you've been renting. The first is that you can use your rent as genuine savings if you’re able to meet the following requirements:
  • You’re currently renting.
  • You’ve been paying rent continuously and on time for at least 6 months.
  • You’re renting privately or via a licensed property manager but this may be judged on a case by case basis.
  • The tenants on the least as the same as the borrowers on the home loan application.
If you’re able to meet the above criteria then the rent that you’ve paid over the last 6 months may be considered in lieu of genuine savings.

If you’ve only been renting for 3 months or more then the following deposit types may be considered as genuine savings:
  • A gifted deposit provided by your parents, but you’ll need to provide a gift letter.
  • Bonus, division or commission payment although you’d need to provide payslips and bank account statements to prove your income.
  • Inheritance, with the help of a letter from the Executor confirming the amount and date you’ll get the money.
  • Non-real estate asset sale.
  • Tax refunds, with the help of a copy of your notice of assessment.
You can go through our website or give us a call if you want to learn more.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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