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How to increase your chances of a home loan approval

If someone asked to borrow money from you, how would you decide whether to say yes or no? Aside from whether you have the funds available or not, you would want to figure out how likely they would be to pay you back. The higher this likelihood, the greater the chances of you saying yes.

In the same way, lenders want to know that you manage your finances well and that you have the means to pay back the loan in consistent monthly repayments. How do they evaluate this?

Lenders will look at whether you have saved consistently over an extended period of time. The Genuine Savings Rule (GSR) is an industry-wide common acceptance of what constitutes genuine savings and what does not. If you can show that you have been saving consistently, it will count in your favour when a lender is deciding whether to grant you a loan.

The question is, what qualifies as “genuine savings” and what does not? To help you with this, we have answered some of the most common questions relating to genuine savings and home deposits.

What happens if my savings fluctuate?

Many employees and self-employed have fluctuating incomes. Remuneration packages offer monthly, quarterly or annual bonuses and commissions, as well as varying levels of work over the course of the year. The important aspect is that when you earn the income, you are saving a portion towards your deposit and that you can prove you are doing this consistently.

Will the first home owners grant contribute to my overall deposit?

The first home owners grant varies from state to state, but it is largely designed to help first home buyers get into the property market. If you are eligible you can factor this into your overall deposit amount, with the additional requirement being topped up by genuine savings.

Can I use my other investments as collateral?

If you can show that you have consistently invested in shares, and have owned them for more than 6 months, many lenders are happy to accept this as genuine savings. You also have the option of using equity in property as collateral.

Will a good rental history help?

If you have come into a sum of money and want to use this as a deposit, a strong rental history of at least 6 months will definitely help you get around the GSR. The lease must be in your name, and you must be able to prove that you have made the payments yourself. If you share the lease with another person, only your portion will be considered unless you are applying as joint-applicants.

Can I use a gift or inheritance as a deposit?

Yes, however you will most likely need a 20% deposit to avoid the GSR. If you are fortunate enough to have parents or family that can contribute, this can help you get approved faster. It should be noted that the amount must be a genuine gift, not a loan. Banks will require the gifter to sign a stat dec stating that the gift is non-refundable.

Can I sell something and use that as a deposit?

Yes, however probably not straight away. If you choose to sell some high-value items such as cars, jewellery or similar, you will still need to hold the amount in your account for 3 to 6 months before it can be considered genuine savings. Also consider that you are reducing your overall assets, which may have an impact on how much you can borrow.

At FutureNow Finance, we can help you plan towards saving a deposit and fulfilling the Genuine Savings Rule (GSR). The sooner you can save your deposit, the sooner you can achieve your goal of home ownership. Contact FutureNow Finance today if you’d like to discuss your options. Call 1300 013 730 or email hello@futurenowfinance.com.au.