What does ‘genuine savings’ mean when applying for a home loan?
Genuine savings is a term used by lenders to identify money in your bank account that you have saved over a period of time (often 3-6 months). This is different to cash you may have in your bank account as a result of selling your car, receiving an inheritance or government grants.
The distinction between the two is important for borrowers to understand as it’s money you have been able to save under your current financial circumstances. This means when you buy a property, if your financial situation stays exactly the same (same job, same life expenses, etc.,) this extra portion you have been saving can now be put towards your repayments.
Ultimately, a home loan is a lender giving you money, and they want to see you can afford to pay it back. Genuine savings helps to prove that you can.
What is considered genuine savings?
Criteria for genuine savings will differ between lenders, but generally, they accept:
- Savings held for three months +
- Shares, term deposits or managed funds held for three months +
- Equity in a current property
What is not considered genuine savings?
Criteria will depend on your lender, however these usually do not qualify as genuine savings:
- Cash gift or inheritance
- Tax refunds
- Bonuses from work
- Selling an asset like a car or boat
Can you use rent as genuine savings?
Depending on who you apply for a home loan with, you may be able to use your rental history as genuine savings. A lender will want to see proof of your rental history to show you have met your repayments on time and, as a first homebuyer, this can provide proof of your ability to make your future home loan repayments.
Can you use a gift from your parents as genuine savings?
A gift from your parents or other family members can act as a deposit, but not as genuine savings. It can be a big boost to achieving your property ownership goals, but it’s best to be transparent with a lender about where it came from.
How much genuine savings do you need?
In Australia, many lenders require a deposit of 20% when you buy a home. If you have less than 20%, you will likely pay lenders mortgage insurance (LMI).
Depending on your lender, they may want to see a portion of this deposit in genuine savings as proof that you can make regular home loan repayments, as opposed to merely receiving the cash as a gift from a friend or family member.
Usually, the lower the deposit, the more important genuine savings becomes, so if you only have a 5% deposit, you may need that whole deposit to be genuine savings.
The bigger the deposit, the less genuine savings you’ll need. If you have a 20% or higher deposit, many lenders will not require proof of genuine savings because they view this as a less risky home loan.
How to calculate genuine savings
To calculate your genuine savings, create a simple list or spreadsheet of all the money you have held in your savings account for more than three months. You then need to separate this into two categories; genuine and other. “Others” will be anything you didn’t save yourself like cash gifts, tax refunds and even bonuses from work. What’s remaining is genuine savings.
Typical genuine savings requirements from lenders
When banking with the Big Four, genuine savings is commonly required when you have a deposit of less than 20%. This likely means you will pay LMI and may be viewed as a riskier choice. This risk can be reduced by proving you are capable of saving and can afford the cost of your loan in your current financial position.
Westpac – Requires more than 5% genuine savings if you seek to borrow 90% of the property’s value.
Commonwealth Bank – Commonwealth Bank does not determine how much genuine savings you need when applying, however its documentation states that if you have a 10% deposit or less, “evidence must be provided of the customer’s account showing genuine savings for the 1 month period.”
NAB – NAB has differing genuine savings expectations depending on your circumstances. It will also depend on whether or not you apply through a government grant. If you apply through the First Home Guarantee scheme you will need 5% of your deposit in genuine savings, while the Family Home Guarantee requires 2% of a deposit in genuine savings.
ANZ – ANZ does not list a specific genuine savings policy on its website. You will need to contact ANZ directly for specific details based on your situation.
It’s important to understand that individual circumstances will change how your loan is serviced so be sure to chat with your lender about genuine savings requirements.
How to boost your approval odds
When it comes to home loan applications, there are a few things that can help boost your chances of being approved.
First of all, check your credit history. A credit score shows your lender how you have managed other forms of debt such as a credit card, car loan, etc. Having a good credit score will help improve your reliability as a borrower. Consolidating outstanding debt can help improve your score.
Secondly, hold off on any career changes. While you are in the process of applying for a home loan, lenders will assess how safe you are as a potential customer. Changing jobs during this process can hurt your chances of securing a home loan, as lenders like to see a steady paycheck.
This will also help you continue adding to your genuine savings, as you can be sure of what you are earning each week/fortnight.
Thirdly, stay consistent. Genuine savings is about showing that you can build up savings over time. Paying a lump sum once may not be looked upon as well as consistently putting a portion of your weekly pay into your savings account over a long period of time.
Can you get a home loan without genuine savings?
Technically, you could get a home without genuine savings. If you already have a property you could use equity in it as a deposit for another. Or, you may inherit a home or be gifted a large enough sum of cash to purchase a property with a large deposit.
It depends on your situation, but even if you do buy a property without genuine savings, remember that you need to be able to afford the repayments. If you don’t have a steady job, you may struggle to meet the repayments of the mortgage or upkeep.
Frequently asked questions about genuine savings
Technically, genuine savings can be part of your deposit. A lender is interested in how you built up your deposit as well as the amount.