What are Genuine Savings?
Genuine savings is money, basically.
Money that you’ve “saved” toward buying your home. And savings that you can show happened over a period of at least 3 months––that equates to at least 5% of the value of the property you’re wishing to purchase.
So, what does that mean exactly? Why a 3-month period?
And what can you show lenders as examples of genuine savings toward a home loan?
Might seem pretty straight forward, but there are some catches you might not have expected. Let’s break it down so you’re completely clear before you go approaching lenders.
Generally speaking, lenders require at least 5% deposit in an applicant’s account before even contemplating loan approval. The catch is, of that 5%, it needs to have been saved over a period of *at least* 3 months. This is how you show “genuine savings”. Why? Well, a 3month period is sort of a snapshot of your spending and saving behaviours over a period of time. And lenders want to know this stuff before they hook you up with their money. They need to know you have the ability to pay them back.
How can you prove genuine savings?
By proving your savings are genuine. Simple huh?
You also need to show genuine savings if you require Lenders Mortgage Insurance (LMI) or are applying for the First Home Loan Deposit Scheme (FHLDS). It is essential that potential lenders can verify you have a minimum of 5% savings and/or equity relative to the security value and/or purchase price before they consider any approval.
To make things a bit clearer we’ve listed what a Bank will consider genuine savings; what are acceptable sources to verify genuine savings; and what will not be an acceptable source.
Acceptable Sources
(Of which totals at least 5% of property value)
Held for a minimum of 3months:
Funds in a bank account
Term Deposit
Shares
Accumulated over a minimum 3months:
Savings in a bank account
Received and held for past 3 months:
Bonus(net) in a bank account
Tax refund in a bank account
Other acceptable sources:
Equity in property
Rental history (evidenced from a real estate agency only)
Sale of real estate
Unacceptable Sources
(You cannot include in your 5% minimum)
Held for less than 3months:
Gift
Inheritance
Sales of assets (other than property)
Bulk earnings
Other Unacceptable sources:
First Home Owner’s Grant
Unsecured borrowings or savings (e.g. Personal loan)
Builder’s or vendor’s rebate/incentive
Proposed savings or rental purchase plan
Savings not held in borrower’s account (including company/business accounts and accounts held in trust)
Superannuation accessed under the ATO’s COVID-19 early release program
Let this be an incentive to start saving if you haven’t yet! And, as per usual, if you need any more information on genuine savings, or help putting together your application, get in contact today to discuss your first steps.
Alternatively, if you have a deposit and you’ve gone through the checklist above, and you have genuine savings lets chat about your unique scenario so we can get the ball rolling!