What are genuine savings?

In recent times, many Australian lenders have introduced a mandatory genuine savings policy for everyone that applies for a home loan.

This was implemented in response to the increased number of first home buyers that were applying for mortgages with no deposit and no savings.

So how does this policy affect your ability to borrow?

Learn about genuine savings

Do I need genuine savings?

What is and isn’t considered to be genuine savings is very complicated! In addition to this, each lender has their own genuine savings policies, many of which have grey areas.

Borrowing less than 80% of the property value

Almost all lenders will waive their requirement for genuine savings if you are borrowing less than 80% of the property value. However, lenders will still question the source of your deposit and may have concerns if your deposit was borrowed from someone else.

Borrowing 81% to 85% of the property value

If you are borrowing up to 85% of the property value, then most major Australian banks will require 5% of the purchase price in genuine savings. The remaining lenders will not require you to prove genuine savings.

Borrowing 86% to 90% of the property value

If you are borrowing over 85% of the property value then most lenders will that you prove 5% of the purchase price in genuine savings.

We have several lenders that may allow you to borrow up to 90% of the purchase price with no genuine savings! These lenders have the same discounted interest rates that are available from the major banks.

Borrowing 91% to 95% of the property value

All major lenders will require 5% in genuine savings. If you don’t have genuine savings, there are some ways around this policy:

  • One of our lenders can approve a loan for up to 95% with no genuine savings!
  • Did you know that some banks will waive the requirement for genuine savings if you are currently renting? Read our section on using rent as genuine savings for more information.
  • If your parents can guarantee your loan using a property they own, you will not pay any LMI and you will not need to prove any genuine savings!

You cannot borrow more than 95% of the purchase price if you do not have a guarantor!

Do you need our help to apply for a mortgage? Please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers will let you know if you qualify for a loan.

Borrowing 100% of the property value

You can only borrow 100% of the property value using a “security guarantee” from your parents or grandparents. We have some lenders that do not require genuine savings for a loan supported by a guarantee.

What is classified as genuine savings?

You can use our Genuine Savings Calculator to find out how much you need to prove in genuine savings and whether your savings will be accepted.

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).
  • If you have been renting for the last three months then some exceptions may apply (see below).

Note that large one-off deposits and future savings plans are not considered to be genuine savings by the banks. They prefer to see a steady, regular savings pattern without lump sum payments.

A few select banks will request 6 months saving history. This is to try and determine which customers have received a deposit from another source, then added to it over three months to make it look like genuine savings.

Are your savings a little outside the box? Give one of our mortgage brokers a call on 1300 889 743 or enquire online and we can work out which lender you qualify with.

Rent as genuine savings

If you can prove a strong rental history, some lenders will make an exception to their normal genuine savings policy and may consider other deposit sources such as a gift from your parents.

If you have been renting for 12 months or more

Rent can be accepted as genuine savings if you meet the following criteria:

  • You are currently renting, and
  • You have a minimum of 12 months satisfactory continuous rental history with payments made on time, and
  • The property you are renting is leased or managed through a licensed property manager/agent (excludes family/private rentals).
  • The tenants on the lease must be the same as the borrowers on the home loan application.

If you meet the above criteria then the rent that you paid over the last 12 months will be considered in lieu of genuine savings.

Please call us on 1300 889 743 to discuss your situation and we can you help confirm whether you are eligible for a 95% home loan. We will need your property manager to complete a rental reference letter (we can provide the template) and/or a tenant ledger to assess your home loan.

If you have been renting for three months or more

The following deposit types can also be considered as genuine savings. However, you must be able to prove that your rental payments have been made on time for a minimum of three months:

  • Gift: The gift must be in your account and a gift letter must be provided by your parents to confirm that the gift is not a loan.
  • Bonus/Dividend/Commission payment: Provide a payslip evidencing payment & bank account statements.
  • Inheritance: Credit to personal bank account and a letter from the Executor confirming the amount and date that the funds will be received.
  • Non-real estate asset sale: Credit to personal bank account with a letter from you confirming the details of the asset that you sold. In most cases this is from the sale of a motor vehicle.
  • Tax Refunds: Provide a copy of your Notice of Assessment.

What are the catches?

  • The majority of lenders do not allow rent to be considered as genuine savings. This is only available from a select handful of banks.
  • Your rent may be considered as genuine savings, however you will still need to come up with a deposit in order to complete the purchase. Your deposit from another source does not need to be genuine savings.

Does this look too complicated? Don’t worry, we are here to help you!

You can use our Genuine Savings Calculator to find out how the banks will assess your savings.

Our mortgage brokers are experts in the genuine savings policies used by the banks and have access to home loans that do not require any genuine savings at all! Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will call you to discuss your situation.

If I don’t need to prove genuine savings do I still need a deposit?

Yes, you will still be required to provide a deposit, or what the banks call ‘funds to complete’. You will need to prove these funds at the time of your initial loan application.

The monies required would ordinarily be a minimum of 5% of the purchase price (depending on the LVR of your loan).

This percentage varies depending on the State in which you are purchasing and whether you are a first home buyer, as stamp duty will need to be taken into consideration.

Stamp duty cannot be added on to the total loan amount unless you are applying for a mortgage with the assistance of a guarantor. It must be paid from your own pocket.

What if I do not have genuine savings?

If you cannot prove that you have saved a deposit you should consider applying for a no savings home loan, available for up to 95% of the property value.

You will still need a deposit, however it can come from almost any source. The great news is that the interest rates are usually the same as those for a regular loan!

If you have no deposit at all then consider a guarantor loan. Whilst some lenders require 5% in genuine savings, there are several others that do not require savings if you have a guarantor!

Please contact us on 1300 889 743 or enquire online if you are thinking about applying for a mortgage.

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 as genuine savings. Below are some examples of types of savings that may cause problems for the lender:

  • First Home Owners Grant (FHOG):One of our lenders considers the federal government’s FHOG to be genuine savings! This is a unique policy that is only available through one lender. However, the FHOG can only form part of your savings. You should have 2% to 4% of the purchase price in genuine savings, made on your own.
  • Savings in a friend/family members account: It is common in Asian families for people to keep their savings in a family member or friends bank account. 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: Most lenders do not consider this to be genuine savings. Although, 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 know lenders that will allow you to borrow up to 90% of the property value using this as genuine savings.
  • Savings in joint names: Some banks will not consider savings held in a joint bank account, to be genuine savings, where one person is buying the property on their own. However, we have lenders that may allow you to borrow up to 90% of the property value.
  • Gift held for three months: Holding a gift in a savings account is technically not considered to be genuine savings. However we know lenders that will accept this even though you didn’t make the savings yourself!
  • Savings not growing: Some lenders have a policy that only savings that are added to regularly are considered to be genuine savings. Having a lump sum in an account is often not accepted. However, we have lenders that can consider lump sums as long as they have been held for over 3 months.
  • Lump sum savings: People who receive commission income, bonuses or who have sold an asset such as a car, often make their savings in irregular lump sum deposits. Unfortunately, lenders do not view this as genuine savings because it does not show that you have the ability save on a regular basis. Although, we have lenders that can consider this as genuine savings for a loan of up to 90% of the property value.
  • 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. Whilst this is the most financially responsible way to save, many lenders do not consider this to be genuine savings! However, we have lenders that will consider savings in a loan account.
  • First Home Saver Accounts: FHSA’s allow first home buyers to save, but also provide for additional contributions to be made by the Federal government. Some lenders do not consider the governments 17% contributions to be genuine savings. However, we have some lenders that consider the entire amount to be genuine savings.
  • Personal loan: If you apply for a personal loan and then put the funds into a bank account for three months, this will not qualify as genuine savings! This will also lower your credit score. A personal loan may be an acceptable source of your deposit for some mortgages with no genuine savings.

Why are genuine savings policies so strict?

Those that do not work in the mortgage industry are often surprised at just how strict lenders are with their genuine savings policies.

For example, if you wished to buy a property for $300,000 you may need to prove $15,000 (5%) in genuine savings. However, if you only have $14,000 saved and the remaining $1000 is coming from another source, then your loan is likely to be declined!

The reason they are so strict with genuine savings is due to their Lenders Mortgage Insurance (LMI) providers. Loans for more than 80% of the property value are insured by an external company. This is to reduce the risk to the lender in the event that you can’t repay the loan.

If a lender has to make a claim on a mortgage insurance policy as a result of a customer not paying their loan, then the mortgage insurer will audit the original approval. If they see that the lender did not have evidence of exactly 5% or more in genuine savings when they approved your loan, then they will not pay the claim! For this reason, lenders do not make exceptions to their genuine savings policies.

How can I make my genuine savings count?

The secret to getting approval is to apply with the right lender who will accept your situation as part of their normal policy. You can find out how the banks will view your situation by using our Genuine Savings Calculator.

Apply for a home loan

Here at the Home Loan Experts we have mortgage brokers with extensive experience in financing property purchases for people who do not have genuine savings. Please call us on 1300 889 743 or enquire online to discuss your situation.

We can help you find out if your deposit is considered to be genuine savings, if you can use your rental history as genuine savings or if you can qualify for a loan without genuine savings. Speak to us today!