March 14, 2016
Showing lenders that you have ‘genuinely’ saved a deposit is one of the most important steps for home buyers when approaching lenders to apply for a mortgage, especially if you are buying your first home.
The lender needs to see that you are capable of consistent, disciplined and ongoing ‘savings’ which reflects your capability to repay a home loan. If you can’t ‘save’ then perhaps you won’t be able to ‘repay’.
The lenders make ‘genuine savings’ a requirement of getting a home loan to ensure you will be able to repay and are unlikely to end up defaulting on your loan in the future.
What are ‘Genuine Savings’?
‘Genuine Savings’ are defined as proof of regular savings that can be seen via evidence in bank accounts or statements over a defined period of at least 3-6 months. If you have been lucky enough to be handed a lump sum of cash, they also want to see that you can hold onto that cash and you aren’t off spending chunks of it each weekend at the local tavern or shopping centre.
How much ‘Genuine Savings’ will you need:
When you are intending on purchasing or building a home to live in (owner occupied), you will need to contribute at least 5% -10% of the purchase price of the property. For Investment properties, you will need to contribute 10-20% of the security value, in the form of genuine savings.
Types of ‘Genuine Savings’:
Lenders will accept a variety and mixture of different types of genuine savings. Generally the savings need to be held in a bank savings account for a minimum of 3-6 months. Some types of genuine savings include:
- A consistent savings pattern: as shown via bank savings account statements, established over a minimum of 3-6 months.
- A term deposit.
- A monetary gift, with an accompanying statutory declaration from the gift giver stating that the gift is non-repayable.
- Cash: (if held in a savings accound for at least 3 months).
- Equity: in an existing property, either your own, or equity can be provided as part of a family guarantee, where the equity comes from a family member's property as an additional security against the loan.
- Inheritance: (if held in savings accound for at least 3 months)
- Proceeds of a property sale: funds that are remaining as cash from the sale of a property asset are acceptable.
What are ‘NON Genuine Savings’:
Lenders also have a list of unacceptable forms of funds that don’t help prove your saving/servicing ability, and won’t be accepted as genuine savings. These include:
- First home owners grants
- Personal loans or borrowed funds
- Cash from the sale of assets such as motor vehicles, boats, jewlellry etc.
- Rent payments.
No genuine savings? It’s still worth looking at your situation on a case by case perspective:
We see different scenarios all the time where people with a deposit don’t quite fit in these boxes listed above.
As home loan experts with up to 25 lenders on our Mortgage Choice panel, it’s our job to ask lenders to consider other forms of savings to demonstrate genuine savings, on a case by case basis.
Some lenders say yes, other’s say no, so it’s a matter of working out where you fit best and making it happen for you when the timing is right, with the right lender. For some, this means initially helping you get on track with a savings plan that will show the lender your genuine savings after 3 months or so, and then taking the application to the lender.
Paying rent for many years for example is often used to demonstrate your ability to make consistent payments and helps strengthen your repayment/servicing capabilities in the eyes of the lender. Rent payments however are not considered as genuine savings. Rent payments are not accumulated, therefore they won’t enable you to display genuine savings as needed to use as a deposit for a home loan.
Redundancy payouts: Another example is when people get made redundant and are provided with a cash payout at the time. These funds can be considered on a case by case basis by specific lenders, particularly if they are held in an account for 3 months or longer.
Tools to help you save:
For more tips on how to save for a home loan, check out our resources:
So, can you afford a home loan?
Proof that you can save via your genuine savings is not just a lending requirement or a hoop to jump through to get a loan. View it as a test to see if you can actually service a loan yourself.
Step back and take a good look at your spending and your savings habits.
Ask yourself if you really can afford the loan and the repayments it requires.
What if interest rates go up? What if you have a child and/or lose an income.
Are you caught up in the heat of the moment of truly wanting to buy a home, but won’t really have the discipline it takes to pay it off?
It’s a big decision to buy a home, and crunching the numbers and getting things in order plays a huge part of it, before you get anywhere near buying one.
So whatever stage you are at, talk to me today about your options, I’ll be happy to help you take that look at your savings as it is now, and help you move it from genuine savings, to a home loan on your first home.
Contact me now on the number below to arrange a chat, or a meeting, at no cost to you.
Phone 07 3833 9666,
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This article is for general information purposes only and does not constitute specialist advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances, and specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy.