Understanding Genuine Savings

Genuine savings refers to the funds that a borrower has accumulated through their own savings efforts, typically over a period of at least three months.

Transforming Deposits into Genuine Savings

Interestingly, any deposit can become genuine savings by merely waiting for three months, involving placing funds into a savings account, making consecutive monthly contributions, and voila! It qualifies as genuine savings. However, this does not extend to deposits obtained through borrowing.

What Qualifies as Genuine Savings?

Accepted Genuine Savings Sources:

• Funds accumulated in the account for a minimum of three months.
• Equity from an existing property.
• Dividends or bonuses held for at least three months.
• Historical rental payments.
• Gifts, inheritances, or builder deposits may be considered by some lenders if held for at least three months.

Excluded from Genuine Savings:

• Government grants like FHOG.
• Proposed savings or rental-purchase plans.
• Savings not held in the account.
• Windfall proceeds.

Importance of Genuine Savings for Banks

Banks consider genuine savings as a measure of creditworthiness, seeking evidence of diligent deposit saving to demonstrate self-reliance rather than dependency on external sources. Qualifying criteria for genuine savings vary among lenders.

Minimum Deposit Requirements

Lenders usually require a minimum 5% deposit of the property’s purchase price, with flexibility in sourcing the remaining amount. For instance, a $500,000 property would necessitate $25,000 in verified savings.

Builder Deposit as Genuine Savings

Some lenders accept a deposit to a builder, developer, or agent as genuine savings, provided it has been held for over three months and wasn’t acquired through a loan.

Securing a Home Loan without Genuine Savings

While possible, securing a home loan without genuine savings involves selecting lenders with non-traditional requirements, such as considering rent as genuine savings.

Options without Genuine Savings:

• Access financing for up to 95% of the property’s value.
• Comparable interest rates to standard loans.
• A strong asset portfolio, stable income, and consistent employment are crucial.
• Deposit can be sourced from various channels or through a guarantor loan.

Using Rent as Genuine Savings

Certain lenders may consider on-time rental payments as an alternative to traditional genuine savings, with specific eligibility criteria.

Challenges for Renters

Lenders may be more stringent for renters without a genuine savings record, potentially requiring a capacity test or 1% to 2% genuine savings.

Other Non-Genuine Savings Options

Gifts, bonuses, inheritance, non-real estate asset sales, and tax refunds can be considered as genuine savings with proper documentation.

Deposit Requirements for No Genuine Savings Home Loan

While genuine savings may not be required, a deposit, termed “funds to complete,” is essential, usually no less than 5% of the purchase price.

Restrictions for Loans without Genuine Savings

Conditions for such loans include being for primary residence purchases, restrictions on land size, and limitations on properties in smaller towns or remote areas.

Non-Genuine Savings Overview

Non-genuine savings encompass recently acquired funds, like gifts or inheritances, lacking a consistent saving history.

Rationale Behind Strict Genuine Savings Policies

Lenders enforce strict genuine savings policies due to the involvement of Lenders Mortgage Insurance (LMI) providers, mitigating risks for loans exceeding 80% of the property’s value.

Avoiding Genuine Savings Mistakes

Understanding where savings are held and ensuring a consistent saving pattern is crucial to avoid common pitfalls.

Improving Proof of Savings for Home Loan

Practical steps, such as budgeting, cost-saving activities, and selling unused items, can enhance proof of savings for a home loan application. Consulting a financial advisor is recommended for a tailored approach.