What Is It?
It’s a term used by lenders to describe the funds you have gradually saved over a period of time (3months in most cases). This is generally required when you borrow above 80% of the purchase price ( case by case with different banks.)
Genuine savings indicates that you’ve planned and saved money gradually, which is what lenders want to see as they view this as a sign of a good borrower which increases your chances of loan approvals.
Precisely labeling genuine savings is challenging, and, in the end, it’ll depend on your lender’s criteria. However, in most cases, genuine savings consist of the following:
- Equity in your current property
- Managed funds or shares that you’ve possessed for a minimum period of three months
- Funds salary waived under FHSSS (First Home Super Saver Scheme)
- Term deposits exceeding terms of three months.
- Savings that you’ve held for three months or more
- If you rent, providing a good rental ledger is also considered.
Why Are Genuine Savings Important?
Lenders need to carry out their due diligence to ensure customers are capable of making timely repayments. Generally borrowing above 80% of the value of the property is categorized as a high-risk borrower. If you possess a higher deposit, you’ll be deemed as a more attractive customer.
As a result, lenders will examine your account and spending and look into:
- What you spend your money on (most lenders frown upon heavy gambling)
- The amount of debt you owe
- How your spending compares to your income
- The amount of money you spent in a week or month
Having genuine savings will earn your lender’s trust and boost your chances of a home loan approval
Regular And Genuine Savings: What’s The difference?
In simple words, genuine savings aren’t conventional savings. It can be money that you use to invest or money that you’ve saved elsewhere. To be labeled as genuine savings, you’ll have to maintain them. If you terminate your term deposit early or withdraw a huge amount from your savings account, they might not be considered as genuine savings.
What Are Not Considered As Genuine Savings?
As mentioned above, simply possessing money doesn’t mean you have genuine savings if it hasn’t sat in your account for more than 3 months. The following wont be considered as genuine savings:
- First homeowners’ grant
- Work bonuses
- Tax refunds
- Asset sales
- Inheritances or gifts
- The money you hold in your business account
- Money that you might have borrowed from someone else
- A lump sum deposit (However, this can vary according to the lender)
However, there can be exceptions depending on your lenders’ criteria. For instance, in some cases, your inheritances or savings can be taken as genuine savings if the executor/gift giver provides you with a letter.
Will I Still Need A Deposit?
Yes, a deposit will still be needed. At the initial stages of your loan application, you’ll need to prove these funds. Generally, a minimum of 5% of your property’s purchase price is required and is also dependent on your loan’s LVR.
How Much Genuine Savings Is Needed For A Home Loan?
This depends on the value of the property you want to purchase.. In some cases, you might not need genuine savings at all:
- 100% LVR (no deposit): If you have a guarantor for your home loan, you don’t need genuine savings.
- 95% LVR (5% deposit): Genuine savings will be required
- Higher than 90% LVR (below 10% deposit): In most cases, you’ll need genuine savings
- LVR of 85-90% (15-10% deposit): you may need genuine savings
- 80% LVR (20% deposit): You don’t need genuine savings
My Deposit Is Less Than 10%. Can I Get A Home Loan Of 95% LVR Without Genuine Savings?
Under certain circumstances, this is possible. You’ll have to meet the following requirements:
- Serviceability is meet.
- Your credit score is healthy
- You’ve been employed for the last 6 months ( minimum)- Preferably Full/Part Time jobs
- You’ve been renting for the past 12 months and make regular payments
How Can I Build My Genuine Savings?
As with your regular savings, you can build your genuine savings through the following methods:
- Tracking your spending with the help of applications
- Save the bonuses you earn
- Get a high-interest term deposit or savings account
- Eliminate unnecessary expenditure
- Every payday, transfer a lump sum
- Pay off your personal loans
To ensure that you don’t spend it, keep your genuine savings in a different no-fee savings account so that it’ll be difficult for you to withdraw.