We have helped thousands of people purchase property from first home buyers to investors – and everyone in between. We help wade through the red tape and match our clients with the loan that best suits their needs. If there is one thing that causes confusion among buyers above all others, it is the ‘genuine savings’ requirement.
Here is everything you need to know about genuine savings and how it can impact on your ability to borrow.
Genuine savings – what and why
Although mortgage terms vary from lender to lender, generally speaking as part of the deposit, most lenders require applicants to show at least 5% of the property’s value in ‘genuine savings’.
Why? It’s pretty straightforward really: the lender wants to see evidence that you have good financial habits and that you have the capacity and discipline to set aside and save money on a regular, ongoing basis (so when you have a mortgage, they can trust you will have the capacity and discipline to make the payments on time).
What is considered genuine savings?
Savings accumulated over three months
A savings account that shows regular deposits and a rising balance over at least a three month time period is considered genuine savings and shows an ability to meet regular repayments.
Term deposits held for three months
In the same way that a savings account accumulated over at least a three month period will satisfy most lenders’ requirements, a term deposit account which has been held for a least three months is also considered genuine savings.
Shares or managed funds held for three months
Starting to see a pattern here? Yep, you got it. Just like savings accounts or term deposits, shares and managed funds that have been held for the golden three month period are also considered genuine savings.
Equity in real estate
This one varies widely between lenders, so talk to us to understand all the fine print. But some lenders will consider equity in another property as proof of genuine savings depending on how long the property has been owned and the level of equity held.
This is another one that varies pretty widely between lenders, so it pays to understand the difference between lenders. Some will view regular rental payments over a period of three months or more genuine savings (which makes sense – your ability to pay rent on a fortnightly or monthly basis demonstrates an ability to meet mortgage repayments).
Salary sacrificing under the First Home Super Saver Scheme (FHSSS)
The FHSSS allows people to enter into a salary sacrifice arrangement with their employer to make voluntary super contributions. These contributions are also considered genuine savings by many lenders.
What isn’t considered genuine savings?
There are a lot of specific definitions, but one easy rule of thumb is that any sudden lump of cash that miraculously appears in your account is not considered genuine savings.
– Savings plans
– Tax refunds
– Proceeds from the sale of a car or other assets
– First Home Owner Grant (FHOG)
– Borrowed funds such as personal loans or credit advances
– Developer’s or builder’s rebates/incentives
– Lump sum deposits (there are some exceptions to this such as proceeds from the sale of property)
How we can help
Many borrowers feel the genuine savings requirement is just one more roadblock put in their way by lenders. We have had some applicants say to us “It is none of the lender’s business where my deposit comes from”. We understand the frustration, however the genuine savings requirements are part of an overall system in place to ensure you are not borrowing more than you are able to repay.
Our job is not to simply find a loan for you. We help establish an overall financial plan that ensures we find a loan that suits your needs. Talk to us early so we can help prepare an outstanding application.