In the quest to securing a property, each forthcoming pay check will serve its duty of helping you to rope together a substantial enough deposit in order to be approved for a loan – whether it be for a family home or the start of a ripe investing portfolio.
Saving up to 20% of a property’s value takes time and discipline, but as managing partner at Chan & Naylor Finance, Graeme Salt shares, the amount that a lender requires also largely comes down to each borrower’s circumstances and how they have been treating their finances over time.
Salt says that while a first-time buyer or a borrower in their 20s, who holds a 5% deposit, could be accepted by certain lenders, it might not be the same for others.
“If you’re in your mid-50s and you’ve only got 5%, then the banks will really concern you,” Salt shares, sitting down with Your Investment Property magazine editor Sarah Megginson to discuss how lenders will respond when assessing your borrowing power and ability to service a loan.
“It depends on where you’re at but if you’re a big spender and you’re not a saver, that’s a major, major cause of concern for the lenders,” he says.
Ultimately, a lender will need to be confident about taking you on for a loan. In saying this, if you can show evidence of being able to budget and put aside capital in the lead up to the application stage, then it will act as an indication of how you will behave financially when you are tied to a loan.
“What you tend to find is that the banks look at the whole picture of a borrower and they say, ‘Is this someone who when times are tough will keep paying their home loan repayments?’” Salt explains.
On some occasions a borrower’s savings can be injected with a cash gift from a relative who wants to help them towards securing home ownership. But how do lenders treat this situation?
Salt shares that firstly, the lender will want to have full disclosure on exactly who gifted you the cash and the specifics around it. But regardless, he adds that they will still generally want to be shown “a three months savings pattern”.
To learn more about what lenders will expect of your finances, as well as what matters most in gaining their approval, watch Graeme Salt’s full interview here.