I am currently in Australia and fixing to buy a house here. What is given more value when I apply for a mortgage to buy a unit in an apartment: a sound credit history, or a lot of savings in the bank ?
In Australia, banks use 3 main criteria to assess your mortgage application.
- Your Credit History - they will generally knock back an application if the applicant has a history of defaulting on loans and other payments. You would pose too high of a risk.
- Your current Net Income (after tax) - used to assess whether you are able to make the monthly mortgage repayments. If you are getting rental income the banks will only count about 75% of your net rent to allow for when the property is vacant (between tenants).
- Your Equity in the property - generally to avoid paying LMI (Loan Mortgage Insurance) you would need a minimum of 20% of your own funds as a down-payment/deposit so that the LVR (Loan to Value Ratio) is not more that 80%. If you are going for a Low Doc Loan (where you only have to sign a Statutory Declaration regarding your income and not provide the supporting documentation to prove it) you will generally require a maximum LVR of 60% (i.e. 40% down-payment/deposit).
Please Note: In some areas where there has been an over supply of apartments built, the bank might require you to have a lower LVR, closer to 60%, where you are buying a unit in such an area.
So as long as you have an ok credit history (you have not defaulted on any loans or payments), the extra savings could be used to increase your equity in the property and thus reduce or eliminate the payment of any LMI, or help you to get a Low Doc Loan if you are self employed, have an inconsistent income stream, or where documentation for proof of income is limited. Summing up, the savings in the bank will provide you with the biggest benefit in this case.
In the US, savings and even income are not part of one's credit score. In theory, the score measures your risk of default from your pattern of how you handle credit in the past. The bank will use a combination of the score and a portion of your income to qualify you for the amount they'll lend at a given rate. A higher deposit might offset a lower score a bit, as the banks risk is obviously less on say, a 50% loan to value mortgage, vs just 20% down. The amount you have saved in the bank doesn't count for much, if anything, if it's not used for a downpayment. It can easily be spend on beer and women after you close on the house.
(At the OP's invitation, I answered how it's done in the US. I know he tagged the question Australia.)