What type of funds can be used as my deposit?
One of the hardest aspects of obtaining a loan for a home is saving for the deposit and fees. Often family members may like to help by providing a gift of money, or you may receive an inheritance, or you may sell some personal assets like a car to obtain some money to be used towards the deposit and fees.
Generally, Lenders want to see a minimum of 5% of the price of a home purchase to be saved as this shows demonstrates to the Lender that you are committed to the loan and have been disciplined with your money. If 5% has been saved, then lump sum funds are usually accepted for the balance of funds needed for costs such as stamp duty, bank and legal fees. If the total funds for deposit and fees are to come from a lump sum, it is possible to obtain a loan without savings, but generally a minimum 10% deposit and fees will be required, and other lending requirements may be stricter in relation to job stability and proving that you have a good history of paying your bills on time and can meet the loan repayments.
Lenders will look to see who the gift is from. They prefer the funds to come from close immediate family members, such as parents or grandparents. When a third party other than immediate family is involved, then it is quite possible that this person may not have gifted you the money for the deposit, but lent you the money instead.
Lenders usually ask the person giving the money to sign a statutory declaration stating the money is not a loan and does not have to be repaid. The borrower will need to provide proof that they have received the money and it is available to be used towards the loan. This is usually done by providing bank statements showing the funds have been received into their account.
Like a gift, Lenders will seek confirmation that the inheritance is a non-refundable payment. To prove this, you typically need to provide a letter from the executor confirming the amount of the inheritance and when it was distributed to you as the beneficiary. You may also be asked to provide a copy of the Will and Grant of Probate. Executors and solicitors are good at keeping records so this shouldn’t be too difficult. Secondly, you’ll need a bank statement showing the funds deposited into your bank account or an account that’s in the name of the executor or trustee of the deceased estate.
If the inheritance is held by the executor or trustee, the letter should also state that you are legally able to access the funds before settlement to be used towards the deposit and fees.
LUMP SUM FUNDS
Sources of funds other than savings may be considered as long as there is paperwork to confirm where the money has come from, that it is your money and is available to be used for the deposit and fees. Money that just appears in your bank account with no explanation will be looked upon harshly by a Lender, and they will assume it has been borrowed or obtained illegitimately.
Examples of lump sum sources could be:
- Sale of an asset like a car. Documentation such as transfer papers can be provided to prove the sale. The deposit of funds into your bank account needs to match the dates of the sale of assets.
- One-off government payments (e.g. tax refund)
- Advances on wages or commission
- Windfall gains if legitimate and can be proven
Obtaining a loan without savings can become complex if not done the right way, so speak to us so we can show you how this can be done that gets you the best result.