In recent times, most lenders have introduced mandatory policies for ‘Genuine Savings’, as a result of the greater number of first home buyers & investors that were applying for loans with minimal deposit & savings. Genuine savings are critical for first home buyers to understand in the current property market conditions, as many first home buyers are forced to purchase their first home with a deposit of less than 20%.
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What is’ Genuine Savings’?
Genuine savings are considered to be the funds that have been genuinely saved over time by the proposed borrower. While Australian lenders have their own genuine savings policies and definitions in place, they all require evidence to show that you have held onto the money over their preferred period of time. Loans that require genuine savings to be shown tend to be for those first home buyers that may be looking to enter the property market as soon as possible with a deposit of less than 20% of the property purchase price.
It is critical for first home buyers to understand the importance of generating ‘Genuine Savings’
What are the types of ‘Genuine Savings’?
The following types of savings are sufficient in most lenders’ policies:
- Savings (term deposits or high-interest savings accounts) accumulated or held over a period of 3 / 6 months
- Shares or managed funds held over a period of 3 / 6 months
- Monetary gift – A statutory declaration from your family members saying that the gift is not payable back to them may allow you to use the Gift as a form of genuine savings (if you have parked the funds over a period of time)
- Inheritance – If the monies have been held for at least 3 months
- Renting – If you are renting before you find your first home some exceptions may apply as you have shown a commitment (depending on the lender) which won’t exist after the purchase of your first home. You would need to show a perfect rental history.
What is NOT classified as ‘Genuine Savings’?
Again this may vary from lender to lender; generally speaking the following are an unacceptable form of funds that don’t qualify as genuine savings:
- First Home Owners Grants (although a few lenders still may consider this)
- Tax Refunds
- Borrowed funds (e.g. personal loan)
- Funds from the sale of assets (such as a Car)
- Funds held in your business account
Some lenders may provide exceptions to the above, especially if you are currently renting a home.
What is the minimum required in ‘Genuine Savings’?
If you are looking to buy your first home as an owner occupier, lenders will typically ask for a minimum of 5% of the property purchase price. If you are looking to buy your first home as an investor, lenders will typically ask for a minimum of 10% of the property purchase price. In order to qualify for these amounts, the lenders will require the 5% or 10% deposit funds to be classified as ‘Genuine Savings’.
If you are looking to purchase a property for $400,000 as an owner occupier and you are looking to purchase your first home with the bare minimum, the lender will require you to show a minimum of $20,000 (5%) in genuine savings. This can be made up of the types of Genuine Savings discussed above.
Please note: Lenders Mortgage Insurance (LMI) & Stamp Duty costs may apply in addition to the minimum savings requirements, some lenders allow the LMI to be added onto the loan. Other lending criteria will also need to be met.
How do you determine whether your current savings qualify for your first home loan?
It is important to understand that lenders will scrutinise and analyse your loan applications if you are applying for a loan with a deposit of less than 20%. Therefore, before proceeding to apply with a lender it is worthwhile speaking to a Mortgage Broker to determine whether your savings qualify as ‘Genuine Savings’. I can help you find out if your deposit qualifies as genuine savings, help you determine the level of savings you would require in order to obtain your first home loan and compare a range of relevant home loan products from a range of lenders.
Taj Singh – FHBA Co-Founder