Not all deposits are equal in the eyes of Australian lenders.
If you are borrowing over 90% of the value of the property then the lender will be looking for evidence of 5% "genuine savings" in your deposit. This is required to satisfy the mortgage insurers.
Genuine savings is commonly evidenced by providing the last 3 months of your savings account statements showing that you have held at least 5% of the purchase price as savings. The lender will be looking to see that the savings have grown over this time and no big external deposits have been used to prop the savings up. Alternatively, you can use a term deposit or shares that have been held for more than 3 months or a combination of all of these.
If you don't have genuine savings then some lenders may look at the rent you have paid over the past three months and use that in lieu of genuine savings.
In any case - the key to genuine savings is planning in advance. If you know you need to satisfy the genuine savings requirement and you plan to apply for a loan in 3-4 months then get your savings in order as soon as possible. Show that you have held the minimum 5% over this time and try to keep it all in one savings account to make it easier for the lender to assess.
Contact us to get help with understanding where you sit with genuine savings.
The federal government recently announced a new scheme to help first home owners save a deposit to purchase their first property.
EFFECTIVE 1 JULY 2017 - Subject to legislation passing
Individuals will be able to make voluntary superannuation contributions in excess of super guarantee of up to $15,000 per year up to a total of $30,000 to purchase their first home. These voluntary contributions, which will be taxed at 15%, along with deemed earnings, can be withdrawn for a deposit on a person’s first home. Withdrawals will be taxed at marginal tax rates less a 30% tax offset and will be allowed from 1 July 2018.
First home savers will be able to salary sacrifice an amount from their pre-tax income directly into super. Individuals who are self-employed or whose employers do not offer salary sacrifice will be able to claim a tax deduction on personal contributions. However, any pre-tax contributions made under these rules must be within the concessional cap.
First home savers will also be able to make non-concessional (post-tax) contributions under this scheme. However, these contributions will not be taxed when they are withdrawn.
The amount of deemed earnings that can be released under these rules will be calculated based on the 90 day Bank Bill rate plus 3% - currently equivalent to a deemed rate of return of 4.77%. This is the actual amount of additional earnings that you will be able to release - so if you invest in a growth portfolio and make 10% earnings then you will be only permitted to release 4.77% of the earnings.
The Government has confirmed that the ATO will have the primary responsibility for administering the scheme, including:
The Government has also confirmed that while the concessional part of a release amount will be included in a person's taxable income, it will not flow through to other income tests used for other purposes, such as for calculation of HECS/HELP repayments, family tax benefit or child care benefit.
Contact us if you would like help with understanding if this strategy is right for you or if you need help with understanding how much deposit you need to purchase your first property.