What is genuine savings and when do I need it?
It’s not unusual for home buyers to need to borrow more than 80% of a property’s purchase price and when you have a deposit of less than 20% its likely you’ll need to pay Lenders Mortgage Insurance (LMI). As part of the loan approval process, one important factor that your lender AND the Mortgage Insurer will need to look at is the amount of ‘genuine savings’ you have.
Genuine Savings is a term used by banks and other lenders to describe the money you have saved over time by yourself. Banks like to see this because it shows you’ve planned your property purchase and saved for a deposit. To a bank or other lender, this helps demonstrate that you’re likely to be a good borrower. Typically, lenders like to see genuine savings accrued and held for a period of 3 to 6 months.
Why are genuine savings important?
Demonstrating to a lender that you have been able to establish a regular savings pattern will give them comfort that you have surplus cash flow, meaning, you don’t spend all your income and you have enough money to use towards loan repayments after you buy a property. This helps make a lender comfortable that you can afford your loan.
When are genuine savings required?
Lenders have different rules regarding genuine savings but generally if you would like to borrow 85% or more of a property’s value, you will have to demonstrate that you have at least 5% of the property’s value in genuine savings. For some lenders, the borrowing amount can be as high as 90% before genuine savings is required. But remember, LMI approval and premiums are required for ALL loans over 80%. Talk to us about which option is best for you. We are experts in working out how to apply each lenders policy to maximise your options and provide you with the best loan possible from our panel of lenders.
What qualifies as genuine savings?
As a general rule, lenders will accept as genuine savings any funds that amount to 5% or more of the purchase price.
Savings held or accumulated over at least three months
Term deposits held for at least three months
Shares or managed funds held for at least three months
Cash gift held for at least three months
Inheritance funds held for at least three months
Contributions from the First Home Super Saver Scheme
Can a lender accept a gift as a deposit?
Yes, some lenders do accept a gift from your parents as a deposit, but the approval criteria can be more complicated than it is for a home loan supported by genuine savings. If your deposit is from a gift, give us a call on 0402 684 199 to discuss.
Rent as Genuine savings
There are one or two lenders that accept your rental history to qualify as genuine savings for borrowing up to 95% of the property value but you still need to provide a deposit for the balance. This can be ideal for first home buyers as saving the deposit and paying rent can be difficult. Funds to complete can come from non-genuine sources like a gift or a tax refund.
In all cases when borrowing, it’s important to keep your credit history in good order and clear of defaults. Other unsecured debt like personal loans and credit cards should be minimal. This is even more important when you are seeking to use rent as genuine savings.
There are a range options to consider when genuine savings is a requirement in your loan application. Talk to us about which option is best for you. We are experts in working out how to apply each lenders policy to maximise your options and provide you with the best loan possible from our panel of lenders.