The ability to save money plays a big part in applying for a home loan. It demonstrates that you can afford the loan repayments .
Lenders may have slightly different requirements when it comes to genuine savings. However, it has to add to a percentage of the purchase price (usually 5%) that has been saved over a certain time period. Three months savings statements will be required to demonstrate this amount building up and being held in an account in your name.
It is usually a requirement when you are borrowing over 80% of the property value. However, different lenders may have different lending criteria, so before applying for a home loan, make sure you check with your lender on what is required.
Some examples of genuine savings include:
- Funds that are regularly saved in a savings account
- Term Deposits that have been active for 3-4 months
- Shares that are over 3-4 months
- Equity in an existing property
- Gifts, cash and/or inheritance that have been kept in a savings account for 3-4 months
- Money deposited into a first home saver account
Although genuine savings are a requirement for lenders, it is also a great learning tool for you as it will help you learn how to budget for the mortgage repayments down the track.
Do I need genuine savings?
Whether a lender requires genuine savings or not will depend on both the lender's policy and how much you borrow.
- 80% of the property value: Genuine savings isn't usually required
- 85% - 90% of the property value: Some lenders need genuine savings
- 95% of the property value: Nearly all lenders require genuine savings
- No genuine savings: Some specialist lenders will offer home loans with no genuine savings, but condition will apply
Non-genuine savings are contributions that were not saved by you. Some examples include:
- First Home Owners Grant
- Gifts that have not been held in your account for 3-4 months
- Proceeds from an immediate sale of an asset like a car or boat
- Borrowed funds (personal loan)
- Tax refund
Put as much as you can into your savings account
- Whenever you get paid, deposit a percentage of your salary into your savings account
- When it comes to birthday's or Christmas, ask for cash instead of gifts and deposit into your savings account for 3-4 months.
- Take on a second job. Even if you do an extra 10 hours a week, it will really help boost your genuine savings and you can also put this extra money towards your deposit.
If you are struggling to create a budget where you can live comfortably and save for a deposit, then check out our blog, Build a budget 101: Save for deposit, for some ideas.
Reduce expenses and debt
Genuine savings is a great way for you to look at your financial situation and ask whether you can actually afford the home loan repayments.
Take the time to go through your expenses and debt and try to eliminate as much as possible. Foxtel subscriptions, gym memberships and other monthly fees can add up. Even if you temporarily cancel these, you can save the extra money and if you find that you can comfortably afford your home loan repayments later on, you can always take on these expenses again.
The more debt you have, the 'riskier' you are as a borrower. Not only will paying down your existing debt help free up more money, but it may enable you to be eligible for a more competitive home loan.
If you are currently paying rent, some lenders may consider this as partially meeting your genuine savings requirements. Rent you are paying now won’t continue after you buy your home so can be viewed as additional capacity to pay your home loan.
Lenders that allow rental payments as proof will still need to see proof of a deposit and the ability to be able to handle your finances. It is still advisable that you have a savings account that you regularly deposit money into as this will help show a regular savings pattern.
As mentioned above, lenders will not accept proceeds from an immediate sale of an asset as proof of genuine savings.
However, you are able to sell an asset, such as a car or household item, deposit the proceeds into your savings account and keep it there for 3-4 months. Once the amount has been in the account for this time, it will be considered part of your genuine savings. It could also help boost your deposit amount too.
If you would like to find out whether you meet the genuine savings criteria or want to find out more about how you can save for a home loan sooner, give our expert Lending Specialist team a call on 13 72 62 or leave your details here and they will contact you.