When applying for a home loan you’re usually asked to provide information on your financial position, including how much money you’ve saved. These savings will form part or all of your deposit that you put towards the purchase of your new home.
‘Genuine savings’ is a term used by lenders to define funds that a first home buyer has saved (genuinely) themselves over time. To have your loan approved most of the lenders will require proof that you have genuine savings if you are borrowing more than 85% or 90% of the value of a property. You will generally need to prove that you have at least 5% of the purchase price saved. Every lender in Australia currently requires at least 5% in the form of a deposit unless you are one of the fortunate ones to receive assistance from your parents in the form of a parental guarantee loan.
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What is ‘non-genuine’ savings?
‘Non-genuine savings’ is a term used to define any funds available to assist an aspiring first home buyer with a purchase of a first home that is not deemed to be genuinely saved over time. Even if you have not been able to save over time (which we know is difficult in many parts of Australia!), it is still possible to have a deposit using non-genuine savings.
Non-genuine savings can be made up of one of the following:
- Gifts and/or inheritance
- Bonus payments
- First Home Owner Grants and/or Rebates
- Tax refunds
- Sale of shares or other assets
In order to remain competitive in the industry, some lenders are now considering various forms of savings/funds for the deposit. It is important to note that if you are currently renting and you can use one of the above sources of funds, you may still qualify for a genuine savings loan! We take a look at each of the non-genuine saving methods in more detail below:
Gifts and/or inheritances
Some parents or grandparents may be in a position to give their children/grandchildren money for a deposit as a gift. Many lenders allow this, however, certain conditions usually apply, such as keeping the gift money in an account for a set period of time to show your ability to save and therefore make repayments once your home loan repayments start. The lender might also require a written statutory declaration from your parents, stating that the money is a gift. Note: Your FHBA Coach can provide you with the template for free if you need one!
If you work in an industry where you receive some large bonus/commission payments at a certain time of the year some lenders will be happy to consider accepting these payments to form part or all of your deposit. Most lenders understand that some industries are bonus intensive and therefore employees/contractors may receive lump some income amounts for their day to day tasks, i.e. they will be required to make a certain number of amount of sales to receive a bonus.
Non-genuine savings may be enough to get you into your first home
First Home Owner Grants and/or Rebates
As the First Home Owner Grants (FHOG) are legislated under state law, most lenders will allow this to form part or all of your deposit, especially if you are currently renting and making your rent payments on time. If you are currently living at home or not renting through a real estate agent you could still be eligible to get a non-genuine savings loan, however, your options may be limited.
Developer rebates (or our very own FHBA 50 Rebate) can be considered by lenders, however, it would be wise not to take this into account to form your deposit because most lenders don’t look at this favourably. Therefore, it is a good idea to use these funds to buy things such as furniture for your first home.
There’s a lot to love about tax time. From time-to-time, you may receive a significant tax refund or windfall (if you get lucky). If this is the case you may be able to use these funds to form part of your deposit. As tax is paid on money you have earned, a tax refund will be looked at favourably by lenders as the refund can be as a result of over-deduction in tax by your employer.
There are plenty of ways to put the money to good use – especially if you’re a first home buyer, i.e. save it rather than treating it as a spendable amount.
Sale of shares and/or other assets
If you are getting serious about buying your first home you may well be considering selling some of your unwanted large ticket items, such as; unused cars, furniture, bikes, jet ski’s or even shares (if you like investing!). Some lenders will consider funds you gain from selling an asset, especially if you won’t need the asset once you move into your first home.
Financing through a personal loan
Although it is always better to save a deposit of your own using your income, you may be able to use a personal loan as part of your deposit to buy a home – especially if you have a good level of income and are struggling to save due to the high rental & living costs. However, you will need to meet some strict criteria to be eligible for this option:
- Clean credit history
- Good repayment history for any personal loans
- Have minimal existing debts/personal loans
- Have significant income to meet the repayments of the home loan and the personal loan
It is best to speak to your broker/coach to determine if this option is viable for you, we will provide advice on whether this is recommended or not for your situation.
What can I do with non-genuine savings?
If your savings are considered to be non-genuine you may still be able to use those funds to purchase your first home because other factors may be considered to determine if you are eligible for a home loan. Every lender has different rules around savings requirements, whether they are genuine or non-genuine savings. Simply complete the form below for your complimentary consultation with an expert first home buyer broker/coach. If you are still saving and looking for some tips & guidance on savings a deposit, please visit our Savers Hub.