Two Sides of the Home Loan Coin

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Just as a coin has two sides – heads and tails – there are two sides to a home loan application. The two key things banks are looking for when considering a finance application are deposit and affordability.

The absolute minimum deposit some banks will allow is 5% of the purchase price plus funds to cover whatever costs (stamp duty, conveyancing, etc) may apply. In many cases banks are looking for more than 5% deposit so the rule of thumb is the more you have saved, the greater your choice of lenders. The deposit must be genuine savings accumulated over a minimum of 3 months and will not count if the money is from a gift, sale of asset, etc unless it has been in your account for at least 3 months.

Secondly, everyone who applies for a loan must pass the bank’s affordability test. This test takes into consideration the number of people in the household, what credit cards, personal loans, HECS debts etc the applicants have. Plus the banks always load the proposed interest rate by up to 2.5% to make sure you can still meet the loan repayments when rates start to go up again.

Both of these measures are designed to make sure people borrow within their means and can afford the loan without causing undue financial hardship.

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