What are genuine savings?

Happy coupleIn recent times many Australian lenders introduced a mandatory genuine savings policy for all loan applications to purchase a property. This was in response to the increased number of first home buyers with no deposit and no savings applying for home loans.

So how does this affect your ability to borrow money to buy a property?

What is the new policy?

Lending policy differs between the banks, however almost all lenders have adopted one of the below policies:

  • 3% of the purchase price is required to be genuinely saved for all loans used to purchase a property, available to first home buyers only and from one lender only.
  • 5% of the purchase price is required to be genuinely saved for all loans used to purchase a property.
  • 5% of the purchase price is required to be genuinely saved for all loans used to purchase a property where the loan amount exceeds 80% or 85% of the purchase price.
  • No genuine savings is required for loans up to 90% of the property value.

What is considered to be genuine savings?

The following types of savings are considered to be genuine savings if they add up to be more than 5% of the purchase price:

  • Savings held or accumulated over 3 months
  • Term deposits held for 3 months
  • Shares or managed funds held for 3 months
  • Equity in real estate (varies depending on the lender)

Note that large one off deposits and future savings plans are not considered to be genuine savings by the banks.

What if I do not have genuine savings?

If you cannot prove that you have a saved your deposit then you should consider applying for a no savings home loan. You will still need a deposit, however it can come from almost any source rather than just savings that you have accumulated.

Unusual savings situations

When you are saving money to buy a home it is unlikely that you are thinking about the lenders policy and how you should structure your savings to ensure it is considered to be genuine savings. Below are some examples of types of savings that may cause problems for the lender:

  • Savings in a friend / family members account: It is common in Asian families for people to keep their savings in an account in the name of a family member or friend. In these situations we can usually assist you to get a loan for up to 90% of the property value.
  • Loan to a friend / family member: Many people who have saved a deposit then lend this deposit to a friend or family member in need. Later the loan is repaid however most lenders do not consider this to be genuine savings. We can help you to borrow up to 90% of the property value.
  • Savings in an overseas account: Recent migrants to Australia, particularly those on a 457 visa, tend to keep some of their savings overseas. Although many lenders do not consider this to be genuine savings we have lenders that can consider savings held overseas for loans up to 90% of the property value.
  • Savings in joint names: Couples often have a joint savings account that they both contribute to. If one of them then buys a property on their own then their joint savings is often not considered as genuine savings. We have lenders that can consider lending you up to 90% of the property value.
  • Savings not growing: Some lenders have a policy requiring savings to be added to regularly to be considered as genuine savings. Having a lump sum in an account is often not accepted. We have lenders that can consider lump sums as long as they have been held for over 3 months.
  • Savings in redraw: Many people save by making extra repayments on a loan they have and then redrawing these funds when they need to make a purchase. Although this is the most financially responsible way to save, many lenders do not consider this to be genuine savings! We have lenders that will consider savings in a loan account.

Are your savings a little outside of the box? Give one of our mortgage brokers a call and we can quickly work out if you are eligible for a home loan.

Apply for a home loan

Here at the Home Loan Experts we have mortgage brokers that have extensive experience in financing property purchases. Please contact us to discuss your situation with a mortgage broker.