What first-time buyers require to secure a mortgage

When it comes to demonstrating genuine deposit savings as part of the home loan application process, some borrowers see it as an inconvenience.  Lenders, however, have a different view.

Proof of a savings pattern will not only illustrate to the lender the borrower’s ability to consistently set aside funds for a specific purpose, it demonstrates the borrower's preparedness for what will most  likely be a large monthly commitment.  This preparation is most important for first-time buyers who are unlikely to have been exposed to high ongoing monthly repayments.

Most lenders these days will require a home buyer, particularly a first-home buyer, to demonstrate genuine savings when obtaining a mortgage; this is usually applicable if they are borrowing more than 85% of the value of the property being purchased. This is traditionally demonstrated by providing at least three months of bank account statements in the applicants name showing they have accumulated the cash equity required to complete the purchase.

Lenders will scrutinise these statements to ensure that the borrower has demonstrated some kind of savings pattern and pay particular attention to lump sum deposits, to ensure that these are not gifted or borrowed funds.

It is quite common for parents to assist their children in purchasing their first home. If this is the case and the parent’s contribution is an unconditional gift to their child and not a repayable loan, a statutory declaration can be completed and used as support documentation for the loan.  It is important to note, however, that the lender may still require the applicants to demonstrate a minimum of 5% of their own genuine savings to contribute toward the transaction.

Less common is the instance where a parent or guardian may loan the applicant a sum of money to assist in the purchase of the property. In this case, the lender may still require the applicant to contribute a minimum of 5% of their own genuine savings to the purchase, but other criteria may also apply.  The lender may ask for a statutory declaration from the person making the loan outlining the terms of the loan inclusive of the regular repayment amount.  During the assessment process the lender will ensure that the borrower can afford to meet their future home loan commitments as well as all other commitments (including repayment to the parent or guardian), without incurring hardship.

It’s essential for first-time buyers to seek guidance in relation to lending criteria early in the home buying journey.  This will ensure there are no surprises or impediments when you are ready to buy.  Meeting all the requirements of the lender will ensure a smooth pathway to home ownership.