Merely having a deposit is not enough!
It essentially acts as proof that you can handle your money well; i.e. someone who has saved their own deposit is a much lower risk than someone who is living at home with their parents and gets a gift as a deposit.
If you are borrowing more than 90% of the property value and do not have a guarantor, then this is essential!
When borrowing between 80% and 90% of the property value, there are quite a few lenders who do not need it.
However, the lending policies for genuine savings are extremely complicated, vary between lenders and they tend to be black and white.
E.g. for a $1,000,000 purchase, you would need 5% in genuine savings, that being $50,000. Now if you only have $49,000, then you’d be declined.
Welcome to the mortgage industry, where common sense is rare!
Golden tip for borrowers
Did you know that you can wait 3 months and most sources are then considered genuine savings? (aside from a borrowed deposit)
Turning your deposit to genuine savings is as simple as putting the funds in a savings account, adding it to it each month for three months and then voila, it is considered genuine savings.
You can turn the following deposit sources into genuine savings by following this tip, to name a few:
- Tax refund
- Lump sum deposits
- Selling your car or other assets
- Funds held in a business account
What is my incentive to wait for 3 months?
Having genuine savings affords certain benefits.
- You can have a wider selection of lenders and products to choose from since some lenders do not offer non-genuine savings product for high LVR loans.
- You can qualify for higher LVR home loans than non-genuine savings product, which means you need to come up with a larger deposit.
- You may qualify for a cheaper LMI premium. Generally, the LMI premium is added on to your loan amount, with a more affordable premium you can save on compounding interest over the 30 years loan term.
To be clear, there are some lenders that don’t need genuine savings, but they are expensive, so it’s best just to meet this criteria.
What are some exceptions to the genuine savings requirement?
Many a borrowers may not have the luxury of waiting 3 months for their deposit to fulfill the requirement of genuine savings. So, here are some exceptions to genuine savings policy:
- If you are using a guarantor loan (parents guarantee your loan using their property), then you don’t need genuine savings.
- Paid rental history can be considered in lieu of genuine savings. Most lenders prefer a minimum of 12 months of rental history, but some lenders will consider 3 months of rent paid on time. Note you’ll still need a deposit or what the banks call “funds to complete”.
- Equity in a property both mortgaged or unencumbered are also considered genuine savings.
There are as many rules and exceptions as there are lenders. Ask one of our brokers directly which is which!
Examples of acceptable genuine savings
Good genuine savings looks like this.
You can see regular deposits and the balance increasing.
This is $13,000 in genuine savings so @ 5%, the max purchase price would be $260,000.
Now in this second example, you can see a lump sum deposit being made.
This example shows a lump sum of $8,000. So only $28,000 is genuine savings. If they wait three months from the date the $8,000 was put in, then it’s all genuine savings.
You can find more specific examples of genuine savings here.
Is your deposit acceptable to lenders?
Our genuine savings calculator makes it really simple to work out if your deposit is considered genuine savings by lenders.
Keep in mind that genuine savings is just one aspect in getting approved for a home loan.
Let our award-winning mortgage brokers chart out exactly what steps you need to take to get the keys to your home.
Give us a call on 1300 889 743 or fill in our online assessment form today to get started.