Why having the right deposit isn’t enough!
In recent times, genuine savings has been introduced as a mandatory home loan policy by many Australian lenders.
Under this policy, a borrower must have saved at least 5% of the purchase price of a property in a bank account in their name.
However, some lenders can consider other evidence as proof that you are good with your money.
Do I need genuine savings?
Lenders have different genuine savings requirements depending on the amount that you borrow.
- 80% of the property value: Genuine savings isn’t required.
- 85% of the property value: Genuine savings isn’t required by most lenders.
- 90% of the property value: Most lenders require genuine savings.
- 95% of the property value: Almost all lenders require genuine savings.
- 100% of the property value: A couple of our lenders offer guarantor loans for 100% or more of the purchase without genuine savings.
- No genuine savings: We have access to several lenders that do not require genuine savings and can accept a borrowed deposit.
For lenders that don’t require genuine savings, you may even be able to borrow up to 100% of the purchase price if you have a guarantor.
Please call us on 1300 889 743 or complete our free assessment form and one of our specialist mortgage brokers will let you know if you qualify for a loan.
What is classified as 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!
You can use our genuine savings calculator to find out how much you need to prove in genuine savings.
It can also tell you whether it will be accepted by the bank.
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’ve been renting for the last 3 months then some exceptions may apply.
A few select banks will request a 6 months saving history instead of the normal 3 months required by other lenders.
This determines which customers have received a deposit from another source and simply added to it over three months to make it look like genuine savings.
Examples of genuine savings
How much do I need?
Lenders typically ask for a minimum of 5% of the purchase price for a home buyer and 10% of the purchase price for an investor.
The rest of your deposit can come from anywhere you like.
For example, if you were buying a home for $500,000, then you’d need $25,000 in genuine savings.
What isn't genuine savings?
Having money in your savings account isn’t enough!
The banks want to see that you’ve planned and saved a deposit yourself because this shows to them that you’re likely to be a good borrower.
The following doesn’t count towards genuine savings:
- Savings plans.
- Tax refund.
- Lump sum deposits (proceeds from sale of property is an exception to this).
- Selling your car or other assets.
- First Home Owners Grant (FHOG).
- Funds held in a business account.
- Any borrowed funds e.g. a personal loan.
- Developer’s or builder’s rebates/incentives.
There are actually many exceptions to the above, particularly if you’re renting.
Give one of our mortgage brokers a call on 1300 889 743 or fill in our free assessment form and we can work out which lender you can qualify with.
Lenders that don't require genuine savings
No genuine savings home loans are available if you choose the right lender:
- You can borrow up to 95% of the property value.
- Interest rates are often the same as those for a regular loan.
- Ideally, you should have a good asset position, income and employment stability.
- You will still need a deposit, however it can come from almost any source.
- If you have no deposit at all then consider a guarantor loan.
Please contact us on 1300 889 743 or complete our free assessment form to find out more.
Some lenders specialise in non genuine savings home loans and we know who they are!
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.
Renting for 6 months or more
You generally need to meet the following criteria:
- You’re currently renting
- You have a minimum of 6 months satisfactory continuous rental history with payments made on time
- You can be renting privately or via a licensed property manager (private rentals are case by case)
- The tenants on the lease must be the same as the borrowers on the home loan application.
If you meet the above criteria, the rent that you paid over the last 6 months will be considered in lieu of genuine savings. Any deposit source will be acceptable with one of our lenders.
Please call us on 1300 889 743 to discuss your situation and we can you help confirm whether you’re eligible for a 95% home loan.
We’ll 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.
Renting for 3 months or more
The following deposit types can also be considered as genuine savings but 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 isn’t a loan.
- Bonus/Dividend/Commission payment: Provide a payslip evidencing payment and bank account statements.
- Inheritance: Provide a letter from the Executor confirming the amount and date that the funds will be received.
- Non-real estate asset sale: Provide evidence 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.
Is it really that easy for renters?
Not necessarily. Banks are stricter in their assessment if there isn’t standard genuine savings in a bank account.
- Only a select few banks make exceptions to genuine savings criteria for renters.
- The banks sometimes have very conservative credit scoring for renters.
- Most banks won’t accept a private lease or a leasing from a family member.
- Some banks will complete a ‘capacity test’ or will require that you have 1% to 2% genuine savings.
- Your rent may be considered as genuine savings, however you’ll still need to come up with a deposit in order to complete the purchase.
Our mortgage brokers are specialists in the genuine savings policies used by the banks and have access to home loans that don’t require any genuine savings at all!
Do I still need a deposit?
Yes, you’ll still be required to provide a deposit or what the banks call “funds to complete”.
You’ll need to prove these funds at the time of your initial loan application.
The amount 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’re purchasing and whether or not you’re a first home buyer as grants and stamp duty exemptions need to be considered.
If you don’t have a deposit but you have a guarantor, we can lend you the full purchase price plus costs!
What other restrictions apply?
In order to get approved with a lender that doesn’t require genuine savings, there are certain restrictions that may apply.
If you have no genuine savings or you’re not sure, speak with us first before applying with a bank directly.
Although some lenders specialise in no genuine savings, the tradeoff is that they tighten other lending rules.
As a general rule:
- No genuine savings home loans are you usually only available for buying a home, not for investment.
- Not available when purchasing vacant land or constructing.
- Max land size with most lenders is 2.2ha.
- Properties in small towns or remote areas may not be considered.
- Your ratio of your net disposable income to your total debts should be at least 110%.
- You’ll only be able to borrow up to 95% of the property value up to $650,000 as opposed to $1 million if you had genuine savings.
Don’t meet the above policy?
Call us on 1300 889 743 as we may have other options available. Genuine savings policies are complicated and there is no one size fits-all solution.
Why are genuine savings policies so strict?
Those that don’t 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 savings.
If you only had $14,000 saved and the remaining $1,000 came from another source, then your loan will be automatically declined with some lenders.
The reason they’re so strict with genuine savings is due to their Lenders Mortgage Insurance (LMI) providers.
Loans that are for over 80% of the property value are insured by an external company. This reduces 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 didn’t have evidence of exactly 5% or more in genuine savings when they approved your loan, then they won’t pay the insurance claim!
Example of non genuine savings or irregular savings habits
The following are examples of savings evidence that may be seen as a red flag with most lenders.
However, some lenders may still consider the following so speak to us first if you don’t think you quite meet standard genuine savings policy.
- Lump sum deposit. You’ll see in this document (circled in red) a lump sum deposit of $8,171.55 deposited on 30 June.
- Fluctuating savings. You’ll notice that this person’s spending habits are little out of control which is a sign that they may not be able to manage their mortgage repayments. Their savings balance isn’t really increasing and is being hindered by spending habits.
- Personal loan statement. Personal loans simply aren’t a good reflection of your character and capacity to save. Only a few lenders will accept this as your deposit.
- Gift held for 3 months. A gift from your parents is only acceptable if you’ve held it for at least 3 months and can provide an accompanying gift letter explaining that the funds won’t have to be paid back.
- Redraw facility. This is unacceptable as genuine savings.
- First Home Saver Account: Unfortunately, First Home Saver Accounts were abolished on 1 July 2015.
How can I make my savings count?
The secret to getting approval is to apply with a lender that 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.
Where did your deposit come from?
When you’re saving money to buy a home, it’s unlikely that you’re thinking about the lender’s policy and how you should structure your savings so it passes their test.
Below are some examples of savings sources that may not be acceptable to the lender:
- First Home Owners Grant (FHOG): One of our lenders considers the government’s FHOG to be genuine savings. This is a unique policy that’s only available through one lender.
- Personal loan: If you apply for a personal loan and then put the funds into a bank account for three months, this won’t qualify as genuine savings. This will also lower your credit score.
- Gift held for three months: Holding a gift in a savings account is technically not considered to be genuine savings but we know lenders that will accept this even though you didn’t save it yourself!
- First Home Saver Accounts: FHSAs not only allow first home buyers to save but also provide for additional contributions to be made by the government. Some lenders won’t consider the government’s 17% contribution but others will.
Not sure whether or not your savings are “genuine”?
Please fill in our free assessment form or call 1300 889 743 and one of our brokers will give you the answers you need.
Where are your savings held?
Did you know that a lot of people who have saved a deposit themselves still get declined?
It’s usually because they don’t keep the savings in their own bank account.
- Savings in a friend/family members account: It’s common in Asian families for people to keep their savings in the account of a family member or friend. You can actually still borrow up to 90% with some lenders.
- Loan to a friend/family member: Most lenders don’t consider this to be genuine savings but 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. 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 won’t consider savings held in a joint bank account in situations 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.
- Savings transferred from another account: This is acceptable as long as the names of each account matches your name and your statements show that regular deposits have been constributed over a period of 3 months to the originating account.
There are other types of savings that may be accepted as genuine savings as long as you can provide a trail of documents showing where the funds originated.
- Savings held in a trust account
- Savings held in a company name
- Savings in the account of a marital partner (as long as they’re a co-borrower).
- Savings in the account of a de facto partner (as long as they’re a co-borrower).
The bank will analyse your savings
The bank is going to look through your savings and analyse the way that you’re managing your money.
- 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 not often accepted. However, we have lenders that can consider lump sums as long as they’ve been held for over 3 months.
- Lump sum deposits: 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 don’t view this as genuine savings because it doesn’t show that you have the ability to save on a regular basis. 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 redraw these funds when they need to make a purchase. Whilst this is the most financially responsible way to save, many lenders don’t consider this to be genuine savings. We have lenders that will consider savings in a loan account!
- Your spending: Any transactions shown in your savings account will be checked against the information provided in your application. The bank is looking for undisclosed debts, other expenses or dependents.
Common deposit sources
More than 80% of first home buyers say that the biggest barrier to buying a first home is saving for a deposit.
That’s according to Genworth’s March 2016 Streets Ahead report which also found that more first home buyers than ever find it unreasonable to require a 20% deposit to buy a property.
Since 2009, the proportion of first home buyers that have used savings as part of their deposit has decreased from 72% to 44%.
Today, around 66% of first home buyers use sources other than their own savings.
More often than not, these alternative deposit sources are gifts from parents and credit cards.
How do millennials spend their money?
Australians under the age of 30 are spending way before their means, a 2016 report by Veda Advantage (now acquired by Equifax) found.
The credit reporting agency found the main reason for overspending was due to the fact that millennials are increasingly more comfortable with credit than the previous generation.
In a similar report, JPMorgan defined millennials as being born between 1981 and 1997, while non-millennials are those born prior to 1981.
It was found that millennials spend a lot more on “experiences” compared to non-millennials.
For example, 16% of overall credit spending was spent on dining compared to 11% for non-millennials, and 12% on entertainment compared to 10% for non-millennials.
Overall, 34% of millennials’ total credit spending was on experience items and services compared to 28% for non-millennials.
This means less money is being put aside for saving or buying assets such as real estate.
Essential tips for saving
- Write down your budget and get buy-in from your partner: In that way, you can support each other.
- Avoid emotional spending: A lot of us do it so replace it with an activity that doesn’t cost you anything.
- Write a weekly menu and stick to it: Sounds simply but you can save literally thousands of dollars a year.
- Freeze your leftovers: You can have them for lunch the next day.
- Ask for discounts on everything: If you’ve been a loyal customer to your phone company or even your bank, ask for a discount including your interest rate.
- Sell old items and clothing online: You may not use it anymore but that item collecting dust in your garage may worth something to someone else
- Repair appliances instead buying brand new: It costs a lot less to keep things in working order than buying brand new appliances and machinery for the house.
- Cancel old credit cards and memberships: You can save hundreds every year and clean out your wallet in the process.
Of course, the best thing you can do is speak with a financial planner to work out the best savings and budgeting strategy for you.
Apply for a home loan
We have mortgage brokers with extensive experience in financing property purchases for people who don’t have genuine savings.
We can tell you if your deposit will be considered as genuine savings, whether you can use your rental history or whether you can qualify for a loan without genuine savings.
Please call us on 1300 889 743 or complete our free assessment form today!