What does a bank look for in a Piggy Bank?
Updated: Nov 23, 2020
When considering how to fund the purchase of a property, everyone talks about a ‘deposit’.
What deposit do you have saved? What deposit will you put on the purchase contract when you sign?
It may be of interest for you to know that these are in fact two different things. The deposit on the contract is a part payment of the purchase price, and this also shows the seller that you are a serious buyer.
When it comes to a deposit, the lender usually wants to see two things;
1. If they approve your loan, do you have enough money now to complete the rest of the purchase?
2. Have you shown your capacity to save these funds, up to a minimum of 5 % of the property price?
Often termed ‘savings’, it could come as a surprise to you that there are numerous variations on the term that a bank will consider acceptable in order to approve finance for you.
At Astute, we field enquiries on this point regularly from customers who are unsure of their situation. We can provide assistance by talking you through various options that we know are available. Whilst each lender and situation is different, here are some of the ways a bank may assess your “savings” history;
1. Genuine Savings - funds accumulated in your personal bank account over a period of 3 months or more. This could also be funds held in your account, and not accessed for 3 months or more.
2. Investments – if you own another property and there is 5% equity, this could satisfy the savings requirement and possibly allow you to raise the funds for a purchase from other sources.
3. Shares or Managed funds – if you have owned these for more than 3 months, these too could help satisfy the savings requirement. If you have other funds to complete the purchase, you don’t need to liquidate this asset.
4. Additional Superannuation Contributions (First Home Buyers Only) - all additional payments into super, over and above your employer minimum contributions can be counted and drawn as savings.
5. Extra Loan payments – if you have made extra payments into a loan or even paid it off within the last month, this can be included in savings. After all, if you weren’t putting the money into the loan, you could have put it into a savings account.
6. Rental history (as genuine savings) - if you’ve been a tenant for 3 months or more, through a licensed property manager, this can also be considered. This may be helpful in situations where you have recently acquired enough money to purchase a property.
The general rule of thumb when it comes to your deposit is, ‘the more, the better’. It will give the bank more confidence and could also get you a better interest rate. Additionally, paying a lower deposit could mean you pay a higher Lender’s Mortgage Insurance premium.
At Astute, we will work through your situation, to understand what options could be available, and how we can get you into a property sooner. The earlier we can speak with you the better, and it could genuinely save you money and time.
So give us a call today, let’s crack open the piggy bank and see what turns up.
Astute Financial Management Pty Ltd | ACN 093 587 010 | Australian Credit Licence 364253 | Davgan Insurance & Wealth Pty. Ltd. T/As Astute East Brisbane Corporate Authorised Representative (425641) of Alliance Wealth Pty Ltd | ABN 93 161 647 007 | AFSL 449221. www.centrepointalliance.com.au/aw | General Insurance provided by Astute Insurance Pty Ltd | ABN 59 622 582 236 | Authorised Representative of Ausure Pty Ltd ABN 94 096 971 854 AFSL 238433. Health Insurance products are underwritten by St Luke’s Medical and Hospital Benefits Association ACN 009 479 618 (St.LukesHealth), a registered private health insurer, [trading as Astute Simplicity Health] and members are introduced by Astute Financial Management Pty Ltd or related entities (collectively known as Astute) for which Astute receives a commission.
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