Do You Need Genuine Savings To Buy Your First Home?

This is an email question from Mark in Joondanna. I want to buy my first home, how much deposit do I need? And does that deposit need to be saved over a period of time?

When you buy a home you generally need a deposit. All banks and lenders have different rules about how much deposit you need, and if the deposit needs to be genuine savings. This would apply whether you’re a first home buyer, or purchasing your second, third home etc.

Lets look at what are genuine savings first, to give you an idea of what banks and lenders look at. The lenders all have different policies, but in general, genuine savings may be considered –

1/ At least 3 to 6 months savings in a bank account.

2/ Shares or other investments (like a term deposit, cash management account).

3/ Some lenders may consider rent as genuine savings.

4/ Proceeds from the sale of a property.

These all would be considered genuine savings with most banks or lenders. If you sell your car, get a tax return or are gifted some money, these generally wouldn’t be considered genuine savings, unless the funds has been in a bank account for 3 to 6 months (depending on the lenders savings requirement policies).

Most banks or lenders require at least 5% deposit to purchase a home. Some require more, and you may need no deposit at all, if you have a guarantor for your home loan.

The 5% deposit is worked out on the purchase price of the home, so if the property costs $300,000, you would need at least $15,000 deposit, plus other fees like stamp duty, settlement agent fees, government charges, etc.

 This is where first home buyers have some good benefits in Western Australia, as there is no stamp duty on an owner occupied home costing up to $500,000, a massive saving of up to $17,765 (the stamp duty cost on a $500,000 home), plus the first home buyers grant of $7,000. If you are not a first home buyer, you would need to have the funds for these fees available to buy a home.

Some banks or lenders will lend up to 95% of the property value, without genuine savings. The banks or lenders may require you to have a stable work history, and may look at your other credit commitments to see if you qualify for this type of home loan.

You will also pay a lenders mortgage insurance fee, if you borrow more than 80% of the property value. This fee, or most of it can be added to the loan, depending on the banks or lenders policies.

This is where some advice from a qualified mortgage broker will help you learn what options are available to you. It is important to know what you need for a home loan, before you make any decisions. It may be a good idea to consider pre approved mortgage finance, as you will have some safety in knowing that the bank or lender has pre approved you home loan application before you start looking for a property to buy. Generally this costs nothing, lasts for 3 months, and there is no obligation to buy anything, if you don’t find a suitable property within that time.

If you would like more personal home loan information, or use my services as a mortgage broker, please contact me anytime.