What are Genuine Savings When Applying for a Home Loan?
A question you are likely to be asked by your mortgage broker during your finance application when purchasing a property is “do you have genuine savings?”. It’s not enough to simply have the funds to complete the transaction – those funds must be deemed “genuine” by the lender.
What are Genuine Savings?
Genuine Savings is a term used by lenders to describe savings you have acquired over a certain period, normally three to six months. It does not include any one-off payments that you have received that have not been in your account for the prescribed time.
Genuine Savings usually constitute:
- Savings held for three or more months
- Term deposits with terms lasting more than three months
- Shares or managed funds held for at least three months
- Equity in an existing property
- Funds Salary Sacrificed under the First Home Super Saver Scheme
Why do lenders want to see Genuine Savings?
Lenders, as part of their due diligence, want to ensure they are lending to people who have the capacity to pay back the loan. Part of that means demonstrating responsible money management and fiscal restraint.
What aren’t Genuine Savings?
Simply having money in your account is not enough in a potential lender’s eyes when they are looking for your equity position or funds to complete. The following are usually not considered genuine savings if not held for over a period of three months:
- Gifts or inheritances
- Sale of assets such as a car
- Tax refunds
- Bonus income
- The First Home Buyers Grant.
Rent as Genuine Savings
Some lenders have a policy whereby they will accept a strong rental history as a form of genuine savings. This acknowledges that the client shows a sound history of managing commitments and in rent is paid in lieu of acquiring savings.
The following criteria must be met to qualify:
- Currently renting for a minimum of ideally 12 months.
- May be renting through a licensed property manager or privately, though lease agreement must be verified.
- The tenants on the lease must be the same as the borrowers on the loan application.
How much Genuine Savings are needed for a home loan?
Fortunately, the bigger the deposit the less genuine savings you may be required to demonstrate.
If your loan to value ratio is 80% or less, you are unlikely to need to demonstrate genuine savings. However, depending on the lender you are using and their unique policy, above an 80% LVR you will be required to show evidence of 5% genuine savings.
To see if your savings qualify to be considered as genuine or to find out how much you need in order to apply for a new home loan, contact one of our mortgage brokers. Furthermore, our experienced team will also be able to offer handy tips to help you save more and get you closer to your home ownership dreams.