Genuine savings. What does this mean and how does it affect your home loan approval?

You are probably aware that to get a home loan you need a deposit or equity from another property. But did you know that the deposit must meet certain requirements?

Lenders want to know how your deposit was acquired. They will consider the following questions:

  • Did you save it yourself?
  • Was it gifted to you?
  • Are you using equity from another property?

If you are borrowing more than 85% of the property value, most lenders require proof of ‘genuine savings’. In other words, you will need to show evidence that over time you have been able to save at least 5% of the value of the property. You will need to show this by providing a minimum of 3 months bank statements indicating savings with no spending.

It is important to lenders that you are able to demonstrate you are disciplined with your finances and indicate whether you are capable of meeting the regular repayments a mortgage will require.

Here are 5 factors to consider when thinking about your home loan deposit: 

1. Using a gifted deposit

Money that is gifted is usually termed as a ‘non-genuine saving’ because you have not saved it yourself. For funds to be considered as a genuine saving that counts towards your home deposit, it needs to sit untouched in a savings account, in your name, for at least 3 months. Some lenders, but not all, may allow gifted money to be used as a deposit if the parents put in writing that the money is a gift that is not expected to be repaid.

Any money your family gives you to help with a home loan deposit must meet lender requirements.

2. Using redraw/equity from your own property 

Having funds available in a redraw account or due to having equity in another property is normally seen as an acceptable form of deposit. This is still subject to lending criteria and valuations at the time of applying for a loan.

3. Using rental payment history

For rent to be considered as a genuine saving, your property must be leased by a registered real estate agent.

Some lenders may consider rental payments as partially meeting genuine saving requirements, but will often add extra conditions such as:

  • You must live in that property for at least 12 months
  • You must consistently make payments by the due date
  • Your property must be managed by a licensed property manager

4. Using a lump sum deposit

Lump sum deposits over time do not demonstrate your ability to save.

Lump sum deposits such as commission income, bonuses, or money from the sale of a car or other assets are not generally viewed as genuine savings because they do not demonstrate your ability to repay or save.

5. Using a family pledge or family guarantee

A family pledge or family guarantee is where a parent or another close family member offers their property as additional security for a purchase. The servicing of the loan is still the borrower’s responsibility, however, the deposit can be less, or in some cases not required, by offering additional property as joint security for the loan.

This option is growing due to the difficulty for young people to save enough of a deposit to purchase their first property.

A non-genuine savings home loan product may be another option for borrowers. Although these products usually have higher fees and interest rates which can increase the overall cost of the loan significantly. If this is the only option for some borrowers, then it may suit their needs now, and they may be able to refinance in the future to find a more affordable product.

Want to know more?

Call us on 1300 652 842 and speak with our team of expert mortgage brokers to know more about your chances for approval.