5% Genuine Savings Dilemma

[Vanillascent]

Hi there,

I only began saving for my first house deposit in February and have saved $10k to date. I have studied full time since 2007 and I currently work 3 days per week perm part time and earn 60k per year while I complete my PhD. I am currently able to save $900 per fortnight after all my expenses as I live at home with my parents.

I had originally planned on buying my first house early next year as I would have saved a 30-40k as a deposit by then.

2 events have come to light which has caused me to reevaluate this timeline:
1. My grandmother surprised me and generously gave me $20k last week to pay off some of my 70k HECS debt (thanks grandma!). I feel this money would be better put towards my first house deposit to get me into the market while interest rates are as low as they are; and
2. My Dad and uncle who are executors of my grandfathers estate are aware that I am looking to buy a house soon and have offered me to pay market value less $12k commission on the house. The house needs work and they have been quoted $430k as a sale price if they paint and recarpet which has been quoted to cost them $5k. It's a decent house and based on past performance I can expect 6.33% CG per year on average. I could rent it out at at least $450 per week after I live in the house for a year for the first home owner stamp duty concession.

Obviously, I am interested in buying the house as is and doing my own renovation as the renovations would price me out of the market. The problem is that its a long weekend, I have no experience in getting finance and I don't have 5% genuine savings currently as I have only just begun saving. I do however have $30k and parents who would be happy to provide security. I have to let the executors know ASAP as otherwise they are going to do the renovations and then I won't have the opportunity. I feel like it's too good to turn down.

My question is?Would it be possible for me to obtain finance without 5% genuine savings if I have a sufficient deposit and family guarantees etc.

Thanks.

T

 

[DaveM]

Are your father and uncle inheriting the property? Is there a mortgage on it? Sounds like a parental guarantee or vendor finance would be some options you could investigate with some of the brokers here like CJay, Rolf, Jamie, Mick C, Shahin etc

 

[Corey Batt]

If your parent's are willing and able to provide an equity guarantee, you can avoid 5% gen savings rules completely (as well as paying any LMI). Once you've purchased the property, you can then renovate and reval, removing the parental guarantee should there be sufficient equity.

This is subject to serviceability on the lend, good credit history etc of course.

 

[Vanillascent]

Thanks guys. My uncle and dad are two of three beneficiaries - which is why I need to pay market value minus commission. I apparently have a perfect credit history - I have only ever applied for a personal loan once and that was for my car.

 

[Peter_Tersteeg]

Before you put the $20k towards the HECS debt, discuss it with a broker and get a proper affordability analysis done. Your HECS debt does affect your borrowing capacity, but it might or might not make enough difference either way. You first need to determine if this you're better off to keep the money or pay off the debt. This assumes that your grandma is okay with putting it onto a property instead of onto the HECS debt.

As DaveM suggests, a parental guarantee avoids the requirement for genuine savings completely. If your parents are willing to use their house as additional security, this could make a big difference.

If the property is going to be for investment use, 5% isn't going to be enough. You still need funds for the stamp duty and you'll find you've got to pay a fair bit of mortgage insurance. You might find you need as much as 13%-15% of the purchase price to make it work.

5% in your account for 3 months can count as genuine savings. There may be a way to make this work for you.

 

[Corey Batt]

Thanks guys. My uncle and dad are two of three beneficiaries - which is why I need to pay market value minus commission. I apparently have a perfect credit history - I have only ever applied for a personal loan once and that was for my car.

Have a chat with a broker who can run the hard numbers on your scenario. They will need to take into account any potential current debts/credit cards/HECs etc.

They can also advise you on the options available, whether you can potentially retain a portion of the funds available, avoid parental guarantee's etc.

 

[Terry_w]

Chat to a lawyer first. There may be some strategies whe re by you could inherit the house and not pay stamp duty.

Also there are no gen savings loans out there.

 

[Vanillascent]

I am a lawyer (not practicing) - I am not a beneficiary so the only way I can obtain the property is to purchase it or for all the beneficiaries to gift me their share - which isn't going to happen haha. I wish.

 

[Terry_w]

I am a lawyer (not practicing) - I am not a beneficiary so the only way I can obtain the property is to purchase it or for all the beneficiaries to gift me their share - which isn't going to happen haha. I wish.

Depending on the wording of the will could anyone renounce their gift with the gift ending up in your hands? A long shot maybe.

 

[Bantam Roosta]

I have to let the executors know ASAP as otherwise they are going to do the renovations and then I won't have the opportunity.

Aren't your dad and uncle the executors? Surely they can give you more than the weekend to sort it out.

BR

 

[Vanillascent]

Yeah they could probably leave it a week or so, but they have to get moving on it. The estate has already been held up for over a year and a half and one of the beneficiaries is chasing money ASAP. I just need to give them an idea of whether or not I am interested and I didn't want them holding out for my answer if finance wasn't really an option to start with.

 

[Bantam Roosta]

Fair point.

BR

 

[Mick C]

Yep 5% non-genuine savings loans are still available and possible; still very common with first home buyers.

3 options.

1. 5% Non genuine savings loan
- the 5% can come from gift/FHOG/ borrowed funds ( max 2%)/ sale of an car or asset etc...
- Need 5% + Stamp duty cost.
- Strict credit criteria= With current employer for over 3 years, income needs to be able to service all debt, no defaults and good credit history
- PPOR purchase only

Rate: from 5.85% Variable
Non banks.

2. 80% LVR Family guarantee loan - the other 20% + soft cost can come from a family's security.
- Depending on lender, guarantor needs to be able to service their portion of the 20% loan as well...not all lenders
- No LMI
- Normally direct and immediate family members only

Rate: from 5.00% Variable
Banks and non banks.

3. 88%- 90% LVR non genuine savings loan

- Similar to the 1st one but less conditions and funding available via standard banks.
- Need 10-12% + Stamp duty cost.
- some credit criteria applies

Rate: From 5.00% Variable
Banks and non banks.

 

[marg4000]

As a matter of courtesy, I hope you have had a chat with Grandma to ensure she is happy to have the intended HECS money spent in a different way.
Marg

 

[Vanillascent]

Thanks Mick C. Great insight. Made an offer on the property today (subject to finance). It will be a good buy if I can get it at the price I offered. Grandma is fine with it. She said she doesn't understand HECs but if it helps me more long term, she doesn't mind how I use it.

 

[Qlds007]

Couple of lenders who will work off valuation rather than purchase price where is a favourable purchase price and that would appear to avoid the issue of genuine savings.

Without that your parents guarantee and a revalue post renovation would seem to solve the problem.