‘Genuine savings’ is a term used by lenders to define funds that a home loan applicant has saved themselves over time.
In recent times, Australian lenders have required borrowers to save at least 5% of the purchase price of a property in a bank account in their name.
What is classified as genuine savings?
The following types of savings are considered to be genuine savings if they add up to be more than 5% of the purchase price:
- Savings held or accumulated over 3 months.
- Term deposits held for 3 months.
- Shares or managed funds held for 3 months.
- Equity in real estate (varies depending on the lender).
- If you’ve been renting for the last 3 months then some exceptions may apply.
- Even salary sacrificing under the First Home Super Saver Scheme can be acceptable.
A few select banks will request a 6 months saving history instead of the normal 3 months required by other lenders.
This determines which customers have received a deposit from another source and simply added to it over three months to make it look like genuine savings.
How much do I need?
Lenders typically ask for a minimum of 5% of the purchase price for a home buyer and 10% of the purchase price for an investor.
The rest of your deposit can come from anywhere you like.
For example, if you were buying a home for $600,000, then you’d need $30,000 in genuine savings.
What isn’t genuine savings?
Having money in your savings account isn’t enough!
The banks want to see that you’ve planned and saved a deposit yourself because this shows to them that you’re likely to be a good borrower.
The following doesn’t count towards genuine savings:
- Savings plans
- Tax refund
- Lump sum deposits (proceeds from sale of property is an exception to this)
- Selling your car or other assets
- First Home Owners Grant (FHOG)
- Funds held in a business account
- Any borrowed funds e.g. a personal loan
- Developer’s or builder’s rebates/incentives
Most banks like to see 3 months’ worth of savings in your account to consider the savings as genuine for you to qualify for the home loan. This is to ensure that you are seen as a responsible saver and hence credit worthy. This is important in particular if you are borrowing more than 80% of the value of the property.
There are lenders who are okay for genuine savings to not be proven if you have a minimum 10% deposit available. Yet others, who will consider the rent you are paying currently to be considered as genuine savings, whilst you may only have saved up less than 10% deposit of the property.
If you don’t have a deposit and have parents providing guarantee for your new purchase, you can in most instances borrow 100% of the value of the property and an additional 5% for borrowing costs such as stamp duty. In this instance you don’t need to show genuine savings.
Every lender has different policies regarding what is considered genuine savings and non-genuine savings and your job and savings situation will determine the lender of choice.
There are actually many exceptions to the above, particularly if you’re renting.