Where there’s a will (and genuine savings), there’s a way
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.
Using Your Inheritance to Buy a Home
Many older Australians have accumulated a decent amount of wealth throughout their years. When they pass away, some of their younger family members may receive a leg-up into the property market in the form of an inheritance.
However, an inheritance alone may not be enough to secure a home loan. In addition, you may be expected to show proof of genuine savings, which demonstrates your ability to put money aside to meet repayments.
In this article, we will 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.
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)
And today's topic ... inheritance
However, it ultimately 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.
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.
Here are some additional tips for using your inheritance to buy a home:
Start by getting pre-approved for a home loan. This will give you an idea of how much you can borrow and what your monthly repayments will be.
Shop around for the best home loan deal. There are many different lenders out there, so it's important to compare rates and fees before you make a decision.
Be prepared to provide evidence of your genuine savings. This may include bank statements, tax returns, or a letter from the executor of the will.
Be patient. The home buying process can be long and complicated, so it's important to be patient and persistent.
Want to learn more? Talk to our brokers today!
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.