What are Genuine Savings?
When assessing a home loan application, usually a lender wants to see Genuine Savings. They are keen to establish that you have the ability to save money. Why? This helps them to evaluate whether you have the capacity to make your monthly repayments.
Every lender has its own definition and requirements for genuine savings. This will depend on the amount that you borrow, as well as the Loan to Value Ratio (LVR) of the application.
For the most part, lenders will accept as genuine savings any funds that amount to 5% or more of the purchase price. Typically you will only require Genuine Savings if the LVR is 85% or higher.
Examples of Genuine Savings:
- 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
- Equity held in another property
- Contributions from the First Home Super Saver Scheme
What aren’t Genuine Savings?
- Monetary gifts
- Tax refund
- Bonuses from work
- Profit from the sale of an asset other than a property, such as a vehicle
- First Home Owners Grant
- Borrowed funds
- Short-term cash savings
Why do lenders want to see funds held for at least 3 months? So they can assess as accurately as possible that you can diligently meet the loan repayments.
Of course, in the current housing climate many applicants do not have genuine savings. Thankfully, there are alternative solutions available to you so you can break into the market.
If you’re a tenant with a rental history of at least 6 months, some lenders will accept your rental payment history as evidence of your ability to make your home loan repayments each month. This can, with some lenders, negate the need for Genuine Savings.
Requirements will vary between lenders, but they will all want evidence that you have paid your rent on time over a period of 6-12 months. Private rental agreements will not be acceptable, the property you are renting must be through a registered Real Estate agency.
Mortgage Brokers also have access to a range of specialist and non-bank lenders in the market that don’t require genuine savings. For these lenders, evidence of stable employment and income, plus a good history of paying bills on time are often sufficient. It is worth noting that you may often pay a higher rate or application fee with these lenders.
You can also bypass the need for genuine savings by having a family member go guarantor on your loan.
If you don’t have Genuine Savings or have further questions, contact the team at WFS to help find the right lender for your situation.