What are genuine savings?

Some lenders want to see proof of genuine savings as part of your home loan application, especially if you’re applying with a low deposit. Genuine savings refer to the money you have saved from your income over a period of time. The minimum period could range from 3 to 6 months for different lenders.

Why do lenders care about genuine savings?

Most lenders expect you to pay 20% of the property’s value when borrowing money to buy a house. However, having a low deposit doesn’t mean you are locked out of the property market. Some lenders will approve you for a mortgage with as little as a 10% deposit, but you may have to fulfil some additional criteria. For instance, you are generally required to pay Lenders Mortgage Insurance (LMI) when applying for a home loan with a low deposit. LMI is a type of insurance that protects the lender if you can’t meet your repayments and default on the loan.

Additionally, some lenders may ask for proof of genuine savings to ascertain whether you’re disciplined enough to continue meeting your repayments once you have a mortgage. By asking for proof of genuine savings, lenders want to determine how you saved up your deposit. A deposit saved over some time reflects financial discipline and a regular saving habit. Both these traits indicate to a lender that you might be a lesser risk than someone who finds it challenging to save money. 

What constitutes genuine savings?

Genuine savings generally refer to your savings held for three months or more. However, genuine savings needn’t be savings in the traditional sense. The money that you earn by selling off your home or shares (held for at least three months) also constitute genuine savings. 

While there’s no set definition of what may constitute genuine savings, most lenders will accept some or all of the following as part of genuine savings: 

• The money held by you in your bank account or a term deposit for more than three months
• Any shares or managed funds you’ve held for more than three months .
• Voluntary contributions made to your super under the First Home Super Saver Scheme.
• The equity in an existing property or sale proceeds from a property.

It’s also possible that you have other savings that weren’t saved or accumulated over time to constitute genuine savings. Such savings are sometimes called non-genuine savings, referring to any lump sum of money you may have received as a  gift or windfall. 

Some common examples of non-genuine savings are inheritance, work bonuses, funds received under the First Home Owners Grant, profits from the sale of your car and even your tax refund. However, accumulating such savings in your bank account for more than three months may sometimes qualify them as genuine savings.

What are my options if I don’t have any genuine savings?

Lenders typically require you to have 5% genuine savings to qualify for a home loan. However, if you have a good rental history, some lenders may accept it in place of genuine savings. 

The whole aim of the genuine savings requirement is to assess your repayment capacity and your ability to save. If you’re currently renting and have a clean rental history for at least six months, some lenders may consider the rent you’ve paid in this period to satisfy the genuine savings requirement. They believe you can use this money towards making your mortgage repayments once you purchase a house as you’ll no longer be paying rent. To qualify, you’ll need to provide a copy of the rental ledger and a reference letter from your property manager as evidence of your rental history. 

It’s important to note that every lender won’t accept rent as genuine savings to approve your home loan application. A mortgage broker can suggest lenders who fit your criteria and are more likely to approve your mortgage application. 

In the event you don’t have both genuine savings and a rental history, a guarantor home loan could be an option worth considering if your parents, or another family member, agree to guarantee your home loan.