Inheritances can be a bittersweet part of life. But an inheritance alone won't always cut it when applying for a home loan. Having genuine savings can help show lenders you've got what it takes to meet mortgage repayments.
With many older Australians having accumulated a decent amount of wealth throughout their years, it's not uncommon for some of their younger family members to receive a leg-up into the property market when they pass away.
But an inheritance alone won't always cut it to land a home loan.
In addition, you may be expected to show proof of genuine savings. This says "hey, I can put money aside to meet repayments" - which is music to a lender's ears.
So today we'll break down what may or may not be considered genuine savings, and how you could use your inheritance towards a home loan.
What counts as genuine savings?
Genuine savings are funds that show off your saving prowess.
Lenders typically look for genuine savings that amount to 5% of the property purchase price. They also like to see that these savings have been held or accumulated for a minimum of three months.
Here are some examples of commonly accepted genuine savings:
- Regular deposits into a savings account over a three month period.
- Term deposits held for at least three months.
- Shares or managed funds held for at least three months.
- A deposit paid to a real estate agent, builder or developer that was originally in your savings account prior to being paid.
Some lenders may also accept your rental payment history as genuine savings.
And some may accept equity in existing property, bonuses, cash gifts, and even your inheritance as long as it has been held in your account for at least three months.
But then again ... some may not.
Genuine savings policies often differ between lenders. So it's important to know just what will be accepted by your lender of choice - and we can help with that.
What doesn't count as genuine savings?
So now we know what may be accepted. Here are examples of funds that lenders commonly don't consider:
- Gift from parents or family.
- First Home Owner's Grant (FHOG).
- Borrowed funds (for example money taken from a personal loan).
- Money from selling assets (for example selling a car or furniture to raise cash).
- Tax refunds.
- And today's topic ... inheritance.
But ultimately, it depends on the policy of the lender you're applying with, because some of these examples (such as your inheritance) may be accepted under certain circumstances.
How can I use my inheritance to buy a home?
Some lenders will allow you to use your inheritance towards genuine savings ... but with caveats.
They'll need proof that the money is in fact yours.
Your lender may ask you for a letter of validation from the executor of the will. They may want to see a copy of the will and grant probate (which proves it's legally binding).
They'll also want proof the amount has been deposited into your bank account. Or, they'll want proof from the executor (or a solicitor) showing you have legal access to the money.
And finally, some lenders require you to hold the funds in your bank account for a minimum of three months before they'll count your inheritance as genuine savings.
It's important to get clear on the requirements of your lender of choice.
This brings us to our next point ...
Give us a call
If you're looking to use your inheritance for a home loan, give us a call.
With different home loan policies for different lenders, it can be confusing.
We can help you work out who accepts what for genuine savings. And show you which lenders are willing to work with your inheritance, so you can make the most of it.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.