What are genuine savings?

First published 20 April 2015, 08:45 AM

Applying for your first home loan doesn’t need to be a complicated venture, but there are a couple of things to get your head around. For one, you’ll need to put down a deposit before you can secure the loan and lenders will typically want this to come from genuine savings. But what does this mean? And what kind of things do they assess? Here is a quick guide to help demystify the terms.

What are genuine savings?

Aside from the First Home Buyer Grant, your lender will normally need you to prove that you’ve got around 5 per cent of the purchase price of the property saved – this is known as genuine savings. Basically, it is money that you’ve accumulated over time. It can even gives you a great starting point to establish good saving habits, as well as preparing you for mortgage payments further down the line.

Why do I need them?

Home loan providers usually ask for genuine savings when you’re applying for a mortgage with a high LVR, or loan-to-value ratio. For example, you’ll generally need to provide evidence of these genuine funds if you’re borrowing 80 per cent or more of the property’s value.

What do lenders accept?

It’s not just a matter of telling the lender you have the money saved – you’ll need to provide evidence in the form of bank statements. This should show that you’ve established the pattern over the space of three months.

There are also also forms that lenders count towards your genuine savings, including equity held in other assets or investments, such as residential property. They might even accept inheritance and cash but the requirements vary. In any case, make sure to have a chat with your Mortgage Adviser before approaching a lender.