Genuine savings, in general, are a non-negotiable requirement when applying for a home loan. It would take a seriously bold lender to ignore a borrower’s repayment capability without scrutinizing the size of his or her bank account.
If you’re a first-time home buyer, genuine savings usually need to be equal to at least 5% of the price of your property you want to purchase. When shopping around for houses for sale that cost $500,000, you’ll need to prove to your prospective lender that you have $25,000 lying around in case you lose a primary source of income to maintain repayment.
Now may or may not be the best time to buy a house in Australia due to the pandemic. But there’s a way to build up your genuine savings steadily until you satisfy the requirements of most lenders. Follow the pieces of advice below.
1. Use Your Rent
Aside from actual money, you could use your rental history to beef up your genuine savings. If you’ve been renting your current residence for a minimum of three months, a reasonable lender may accept your history of payment as a means to judge your loan eligibility.
If you could present up to 12 months of rental history, you may be even be qualified to borrow up to 97% of the price of the property.
Normally, a mortgage lender would want to see a rental ledger from a licensed real estate agent to count rent as genuine savings. But if you’re renting privately or sharing the place with other tenants, you may still be allowed as long as you can present a legally binding tenancy agreement with your name on it.
2. Explore Non-savings Sources of Funds
Not every deposit counts as genuine savings. After all, the name implies that the funds must come from your regular income and be a product of your discipline as a saver.
Under certain circumstances, though, you may be allowed to use gifts, inheritances, commissions tax refunds and proceeds from non–real estate sales. Some lenders are willing to recognise these sources of funds as long as you back it with three months of solid rental history.
3. Get as Many Refunds as You Could
The COVID-19 outbreak has been financially tough on many of us, including businesses. However, it doesn’t mean you should no longer ask for the return of your advance payments for cancelled events and flights.
Companies, even the big ones, are struggling right now, so you may not be able to receive your money immediately. Nevertheless, apply for your refunds as soon as possible, so your situation would be given attention accordingly.
4. Restrict Your Budget to Essentials
It should go without saying that it’s wise to observe austerity during the pandemic due to the economic uncertainties that it has brought. The more luxuries you could give up, the faster you could increase your genuine savings.
Some rules of mortgage application have changed caused by COVID-19, but the need for genuine savings hasn’t. Be extra wise with your money during the new normal to qualify and afford your dream house in this strange time.