Have you heard this term before? You might have if you have ever applied for a home loan, most lenders want to see some form of genuine savings, but what dies this mean?
Recently friends of mine applied for a home loan and they were declined, now their combined income was quite high they didn’t have a lot of debt, just the usual a couple of credit cards and a car loan and they had more than a 20% deposit. So why were they declined because on the surface they tick all the boxes right?
We’ll firstly they are self employed, which in and of itself isn’t a major issue many self employed people purchase property every year. The issue arose out of how they paid themselves, they paid themselves out of the business in large lump sums every month or two. They were in a position where the business could cover most of their day to day expenses so they didn’t require weekly or fortnightly income to support themselves, additionally they cash flow of the business would go up and down depending on sales of equipment so they would leave cash in the business to purchase new equipment to be able to sell it. This all seems to make perfect business sense right? They weren’t doing anything wrong so how what was the issue.
The issue was that when the bank asked for evidence of genuine savings they couldn’t show any, they could show large irregular cash deposits but no history of putting money away on a regular basis. See most lenders want to know that YOU know how to save, and that you can cover sudden extra expenses as well as your regular repayments. They want to see that you have “rainy day” money.
This doesn't mean you have to save the whole deposit over time, putting away money every week but it does mean that you need to show at least 3 months of putting away something each week or fortnight, even if it’s only a couple of hundred dollars. So what happened to my friends?
Well they changed slightly how they paid themselves, they simply paid themselves each week a small amount and waited for 3 months and reapplied, and they were approved immediately. Luckily for them they were purchasing into a new development that hadn’t started construction so the property was still available and they didn’t miss out, but had they been trying to buy and investment that was pre-existing and others were interested in they could have missed out on a great opportunity.
So even if you have the deposit gifted to you make sure you are putting away a little something each week so you don’t miss out on your opportunity when you go to purchase a property with finance from any lender.
For assistance in making sure you are ready to apply for finance or with finding the right investment opportunity talk to the team at FNIP today.
First National is Australia’s largest independent real estate group and the only 5 Star Canstar rated real estate group in Australia