Genuine Savings

What Do Lenders Consider as Genuine Savings?

There isn’t a black and white definition of genuine savings because every lender implements their own policies. The general idea behind genuine savings is that it demonstrates financial responsibility. Just like having clean credit and keeping your unsecured debt levels low, if you can maintain a high balance in your savings account and regularly add to it – or demonstrate your skills as a saver in another way – lenders are more likely to view you as a responsible borrower.

As a rule of thumb, banks will look for at least 5% of the purchase price as savings. So, if you wanted to buy a $400k home, you’d need to have $20k in genuine savings at the minimum. You may still have other sources to fund your deposit, but 5% has to come from your savings. This money has to be growing in a savings account in your name for at least 3 months.

A lot of lenders will accept savings held in other financial accounts that are used to save money or grow wealth, such as:

• Term deposits
• Shares or managed funds
• First Home Super Saver Scheme (under the First Home Super Saver Scheme (FHSS), introduced in December 2017, you can salary sacrifice or make after-tax contributions into a super saver account)
• Some lenders will accept equity in real estate

You may also be able to get around the genuine savings requirement if you are a renter.

Demonstrating Genuine Savings as a Renter

When you are already paying rent it can be challenging to save enough for a 5% deposit. Fortunately for renters, there are lenders who are more lenient with their genuine savings policy for borrowers who can demonstrate a strong rental history.

As a renter, you are regularly saving a large sum each month or fortnight for your rent payment. This is a similar concept to simply saving up for your home loan deposit, so there are lenders who will use your strong rental history to confirm you are capable of saving. You’ll still need to have a deposit when you apply for a mortgage, but as a renter, you won’t necessarily have to have a 5% deposit in your own savings account for at least 3 months.

Where can your deposit come from as a renter?

If a lender is willing to consider your rental history in lieu of a genuine savings history, some or all of your deposit can come from:

• • An inheritance
• • A gift from your parents
• • A work bonus or commission
• • Dividend income
• • Tax refund
• • Sale of an asset like your car, a musical instrument, or furniture
• • Personal loan (only some lenders will accept a loan as a deposit)
• • First Home Owners Grant

Also, the longer you’ve been a responsible renter, the better. You’ll have a better chance of qualifying for a no genuine savings loan as a renter with a 6 or 12-month rental history.

Call our mortgage experts on (07) 3146 5732 to learn more about which lenders have flexible genuine savings policies. You can also contact us online.

Do All Lenders Require a Genuine Savings?

Not all lenders require 3 months’ worth of savings history. However, if you don’t need genuine savings to qualify for a loan, it will be even more important to prove you’re a reliable borrower with factors like a high, stable income, a healthy asset ratio, and excellent credit.

On the other hand, there are some lenders who are stricter in their policies than others. Some will want to see a 6-month long savings history.

What about the Rest of Your Deposit?

The genuine savings requirement only applies to a 5% deposit. If your downpayment is larger, the rest of your deposit can come from other sources such as a work bonus or money gifted to you from your parents. With our $400k property example, you’d have to have at least $20k in genuine savings, which would mean you could apply for a 95% LVR loan.

With a larger deposit, you may qualify for a better loan and you’d pay a lower LMI premium. To apply for a 90% LVR loan, you’d need to have another $20k for a total of $40k for your loan downpayment. This money doesn’t have to be money you save. You could, for example, sell your personal assets, use your tax refund, and use the First Home Owner Grant, if you’re eligible.

What if You Have a 20% Deposit?

The larger your deposit – and the lower your Loan to Value Ratio – the better position you’re going to be in as a borrower. With a large deposit, you’ll have a smaller LMI premium or you won’t have to pay it at all. You also won’t have to demonstrate that you have genuine savings.

• With a 95% LVR loan, you’ll almost definitely need genuine savings
• With a 90% LVR loan, you’ll need to have genuine savings to qualify with most lenders
• With 85% LVR or less, as long as you aren’t applying for a low doc loan, you probably won’t need to have genuine savings

How Stringent Are Banks in Evaluating Your Savings?

Banks are thorough when looking at your savings. To ensure your savings are genuine:

• • The funds should be held in an account in your name, not that of a friend or family member
• • You need to make regular deposits – irregular lump sum deposits are viewed as a red flag by some lenders
• • Ideally, the amount in savings will continue to grow – you can’t just make a lump sum deposit and let it sit there for 3 or 6 months
• • Lenders will also evaluate your bank transactions to see if you have other expenses or debts you may not have listed on your application

Another factor a lot of borrowers don’t take into account is that you’ll need at least 5% of the purchase price in these genuine savings. Even having $19,500 in your account when you need $20,000 to purchase a property for $400k can lead to your application being denied.

There’s a reason lenders are so strict with their genuine savings policies. It’s the lender’s job to verify that you’ve met the 5% genuine savings requirement as part of the agreement with their Lender’s Mortgage Insurance provider. If you were to default on your mortgage, your lender will have to verify that they carried out the genuine savings check when they file a claim with their insurer. Failing to do so can result in their insurance claim being denied.

Some Lenders Don’t Require Genuine Savings

Genuine savings has become a standard requirement with many Australian lenders but there are plenty of exceptions. Simply by applying with a lender that doesn’t require genuine savings you can avoid this requirement.

Keep in mind, you’ll always need a deposit, unless you’re applying with a guarantor. However, if you are a well-qualified borrower and you apply with a lender that doesn’t ask for genuine savings, getting past this requirement is possible. There will likely be a few restrictions on your loan you’ll want to be aware of before applying:

• Loans without genuine savings are for owner-occupier loans, not investment loans
• The property has to be in a high-demand area – your application may be denied for a home in a remote area or a small town
• The loan should be for the property not a construction loan for a new build
• The maximum loan amount will be lower than if you had genuine savings
• You’ll want to have a high income and minimal debts – you’re more likely to qualify for a no-genuine savings loan if you can keep your income-to-debt ratio at an acceptable level

If you haven’t been able to save at least 5% on your own and your deposit is coming from somewhere else, call us on (07) 3146 5732. We know which lenders are flexible with genuine savings.

How to Save Enough for Your Loan

With the high price of homes in Australia today, saving a 5% deposit is a struggle for a lot of borrowers. Setting aside $20k, $25k, or more doesn’t happen overnight, and it doesn’t happen without a savings plan.

• If you’re having trouble saving, create a household budget. Look at what you’re spending money on and decide which spending habits you can change so you can increase the amount you’re saving each month.
• Set up automatic deposits into your savings account so you can create a record of making regular contributions to your savings.
• Talk to a financial planner to help you create a personalised savings plan and budget – getting outside, professional help can make a huge difference.

Finding the Right Loan for Your Savings

The genuine savings requirement is one of the more nuanced aspects of the home loan process. Policies vary from one lender to another, and you’ll encounter lenders with strict criteria as well as lenders that don’t need you to demonstrate genuine savings at all.

At Nexus Money, our mortgage experts know what lenders are looking for when it comes to your savings. Call (07) 3146 5732 to talk with one of our home loan specialists, or fill out our online enquiry form to learn more.