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 affect your ability to borrow?
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.
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.
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, many of which have grey areas.
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
A few select banks will request a 6 months saving history instead of the normal 3 months required by other lenders.
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.
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 the bank would require you to have $25,000 in genuine savings.
What is not genuine savings?
Having money in your savings account isn’t enough!
The banks want to see that you have planned and saved a deposit yourself because this shows to them that you are likely to be a good borrower.
The following doesn’t count towards genuine savings:
- Savings plans
- Tax refund
- Lump sum deposits
- 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, in particular if you are renting
Give one of our mortgage brokers a call on 1300 889 743 or enquire online and we can work out which lender you can qualify with.
What if I don't have genuine savings?
You can still get approved if you do not have genuine savings:
- 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 enquire online if you are thinking about applying for a mortgage.
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 6 months or more
Rent can be accepted as genuine savings if you meet the following criteria:
- You are 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 then 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 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 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 is not 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 will not 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 will still need to come up with a deposit in order to complete the purchase.
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!
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 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 are purchasing and whether you are a first home buyer as grants and stamp duty exemptions will need to be taken into consideration.
If you don’t have a deposit then we can lend you the full purchase price plus costs if you have a guarantor.
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. In some cases, if you only have $14,000 saved and the remaining $1,000 is coming from another source, then your loan will 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 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 did not have evidence of exactly 5% or more in genuine savings when they approved your loan, then they will not pay the insurance 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.
Please enquire online or discuss your situation with one of our brokers by calling 1300 889 743.
Where did your deposit come from?
When you are saving money to buy a home it is unlikely that you are thinking about the lender’s policy and how you should structure your savings to ensure it is considered as genuine savings.
Below are some examples of types of savings sources 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.
- 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.
- 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 make the savings yourself!
- First Home Saver Accounts: FHSAs 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 Government’s 17% contributions to be genuine savings. However, we have some lenders that consider the entire amount to be genuine savings.
Not sure whether your savings are “genuine”? Please enquire online 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 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 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. 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 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.
The bank will analyse your savings
The bank is going to look through your savings and analyse the way that you are 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 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 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 do not view this as genuine savings because it does not 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 do not 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.
Apply for a home loan
We have mortgage brokers with extensive experience in financing property purchases for people who do not have genuine savings.
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.
Please call us on 1300 889 743 or enquire online today!