We have had heaps of calls recently from first home buyers wanting to get out of the rental market and into a home of their own. The biggest hurdle most of them are faced with is how to come up with the deposit.
When you pay rent and then have to come up with even 5% deposit on say a $450,000 purchase = $22,500, it takes effort and a real focus on putting money away.
There are also the additional costs associated (legals, gov fees, pest & building costs and Lenders Mortgage Insurance).
Normal bank policy sees a requirement for you to prove to the bank that you can save and put 5% into savings over a minimum 3 month period. This is a business decision made by the bank to make sure you will not default on your loan repayments, afterall they are looking to lend you over $400,000 so I guess they have a right to make sure they get their money back.
We have access to a couple of quality lenders who will use rental paid over a 12 months period to evidence that you can make loan repayments moving forward. The rent needs to be paid to a REIQ managing agent, so no private arrangements or board paid are acceptable as evidence. This way – if you want to use tax refund for example and sale of a car or boat towards the deposit – as long as your rent covers the 5% over the 12 months – the funds can come from anywhere.
Example: Purchase price $400,000. 5% Genuine savings required is $20,000. Funds in savings account $12,000 saved + Tax refund $3,000 + sale of boat $7,000 = total $22,000 (but only $12,000 has been in account over 3 months). However rent paid has been $420 per week for 12 months = $21,840 in total payments and this exceeds the $20,000 Min 5% required and accordingly bank will accept the tax refund and boat sale towards overall deposit.
There are other alternatives such as receiving gifts from family to assist, and family guarantee loans. These can often save clients thousands in Lenders Mortgage Insurance costs – as the bank provides the full loan amount, but the security is over the property being purchased and 20% will be secured against the guarantors property. The guarantor does not have to come up with any “cash” – the overall loan needs to be able to be serviced by the clients in full. There are some conditions that apply of course – but these loan set-ups are becoming very popular with clients whose parents have equity in their own home or investment property.