What can I use as a deposit?
Now that you’ve figured out how much you’re going to need for a home loan deposit, it means you’ve got a savings goal in mind. But do you have to actually save all that money? What if you’re lucky enough to have access to funds from other sources?
Believe it or not, there are some outside-the-square options when it comes to saving a home loan deposit. We spoke to top-performing mortgage broker Jeremy Fisher, the director and founder of 1st Street Home Loans in Sydney. Fisher has settled more than $1.5 billion in loans since 2002 and has won multiple awards in his industry. Fisher shared with us some of the ways you can boost your deposit from outside sources. It turns out that while you’re still going to need cash in hand to serve as a deposit, that cash can come from a few different places.
There’s one catch with using any sudden influx of cash as a home loan deposit: the genuine savings rule. Most lenders want to see a pattern of savings to build up your home loan deposit. This shows them that you have good financial discipline. As a general rule, most lenders like to see six months of genuine savings. That doesn’t necessarily mean you have to be contributing regular amounts. But if you find yourself suddenly awash in cash, most lenders will want you to hold it in your account for six months before using it as a home loan deposit. There are some lenders out there who don’t require genuine savings, but six months is a pretty good guideline to follow in most cases.
Can I use my super as a deposit?
The answer to this one is “not exactly”. There’s been plenty of debate about the merits of allowing buyers to dip into their superannuation funds for a home loan deposit. While Fisher tells us that you can’t actually raid your super for a deposit, there is an option that allows you to leverage your super.
The federal government recently announced the First Home Super Saver Scheme, which allows you to salary sacrifice into your superannuation for the purpose of saving a home loan deposit. The funds that go into this account are taxed at a much lower rate than your normal pay, which means you have the potential to save more than if you’d taken the same amount of money and put it into a savings account.
There are a lot of important details to keep in mind with the First Home Super Saver Scheme and we’ll share all of them in part 4.
Can I use a First Home Owners Grant as a deposit?
You can use a First Home Owners Grant to form part of your deposit. This is very useful if you're building or buying a new property as you can add the grant to your deposit. In some states you might even be able to access a grant whether you're buying a new property or an older dwelling. The most important thing when using a grant for your deposit is to be completely certain that you and the property you're purchasing meet the necessary eligibility requirements for your state or territory.
Can I use shares as a deposit?
If you have a share portfolio, you might wonder about using it for a deposit. You can’t just show a lender your portfolio and have them take it on good faith as a deposit, but you can liquidate your shares and use the cash for a deposit.
One great thing about selling your shares to use the cash for a home loan deposit is it can help you get around the genuine savings rule, Fisher says. As long as you’ve held the shares for at least six months before you sell them, you should be able to use the cash right away.
Can I use my rental history as a deposit?
While you can’t actually use rental history as a deposit, you can use it as proof of genuine savings, according to Fisher.
“As a general rule, a 12-month rental ledger is required to confirm, and the lease must be in the applicant’s name,” he says.
This means if you come into some money that you want to use as a deposit, you can get around the genuine savings requirement by having 12 months of good rental history.
Can I use a gift or inheritance as a deposit?
Most lenders will require a 20% deposit to avoid the genuine savings rule. However, a few lenders will accept a 10% deposit without the need to confirm genuine savings...
Suppose your parents gift you the money to use as a home loan deposit. If you should be so lucky, there are a couple of requirements you have to fulfil.
First, your parents will have to sign an affidavit verifying that the money is a gift rather than a loan. If your parents require you to pay the money back, lenders will look at it as a liability when determining your borrowing power.
Second, the amount they lend you will have to meet certain requirements to avoid the genuine savings rule, Fisher says.
“Most lenders will require a 20% deposit to avoid the genuine savings rule. However, a few lenders will accept a 10% deposit without the need to confirm genuine savings,” he says.
The same goes for money from an inheritance. You can use these funds for a deposit, but to get past the genuine savings rule, you’ll need a 10%–20% deposit.
Can I sell something and use the proceeds as a deposit?
If you happen to have some valuables sitting around that you want to sell, you can use the funds for your deposit. Once again, though, Fisher says you’ll need to hold the funds in your account for six months to meet the genuine savings rule.
Can I use a personal loan as a deposit?
So what about just borrowing more money to use as a deposit? Can you go down to the bank, take out a personal loan and then turn around and use it as a deposit to get a home loan? Surprisingly, Fisher says most lenders will let you use a personal loan as a deposit:
“Most lenders will consider this. However, the personal loan funds will need to have been held for over six months, plus the personal loan liability will need to be included as a liability so serviceability needs to be maintained.”
In other words, borrowing money to so you can borrow more money is a double-edged sword. Any amount you borrow for a deposit is going to be counted as a liability when assessing your home loan. Using a personal loan as a deposit could affect the size of the home loan lenders are willing to give you.
Now that we’ve had a look at the different sources for your deposit, let’s get into the nitty-gritty of how to actually save for it.
Other parts in this guide
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