Homebuyers can benefit from understanding genuine savings and how they can use it to maximise their deposit and apply for better rates.
But what exactly are genuine savings, and why do they matter? Let’s dive into genuine savings, exploring what it entails and why it’s vital for your financial journey.
Genuine savings: What is it and why should I care?
Simply put, genuine savings is the money you have accumulated through time. Having adequate genuine savings may help you get off to a strong start in developing healthy saving habits and getting approved for your first mortgage.
Why lenders require genuine savings?
Lenders often require genuine savings to evaluate an applicant’s capacity to meet loan repayments. During assessment, banks and non-bank lenders may ask how you’ve managed your deposit. This may initially seem a little nosy, but it’s one of the methods some lenders use to determine if you’ll be able to handle the financial responsibility of a home loan.
Genuine savings over time reflect a borrower’s commitment to financial responsibility and self-control. It shows that the borrower can continuously save money out of their income, which is an essential trait for being able to make mortgage payments.
How much genuine savings do I need?
The amount of genuine savings you need can vary depending on several factors, including your financial situation, the lender you choose, and the home loan you’re applying for.
Your deposit’s remaining funds may come from any source you choose.
Other well-known lenders, however, ask for at least 5% in genuine savings as part of your house loan deposit.
This will show that you can manage your spending and save money simultaneously. It demonstrates sound financial management and will help lenders evaluate your application for a house loan. Speak with our mortgage experts today to learn about how much genuine savings your chosen lender requires.
I’ve already have my deposit. Does it qualify as genuine savings?
Yes and no. For your deposit to be considered genuine savings, you must show a record of the money being saved over time or that the amount has been in your account for at least three months.
Think of it this way. Say you’re a lender evaluating an applicant. The applicant wants to declare their loan deposit as genuine savings as it is transferred from their bank account.
Typically, this is seen positively since the applicant has the money prepared. But upon closer inspection, if you find that the deposit amount has been transferred to their account within the week of depositing it to you (from your parents), you may think it doesn’t reflect strong financial character.
In other words, while a deposit paid from your savings is generally viewed positively, whether it qualifies as genuine savings can vary among lenders, so it’s essential to understand and address the specific requirements of your chosen lender.
You must offer proof through bank statements and notify the lender that you have the money saved. This should demonstrate that you’ve developed the pattern over three months.
Lenders may also consider the equity you own in other assets or investments, like real estate, when calculating your genuine savings.
Even inheritance may be accepted, but the conditions differ. In any case, speak with your mortgage adviser first before going to a lender.
I don’t have genuine savings, can I still get a home loan?
You can still qualify for a home loan even if you don’t have genuine savings. But without it, you may encounter certain limitations.
Lenders have various loan packages, and their approval criteria can vary, so exploring your options is essential. Talk to our senior mortgage brokers today and let us take you through home loan solutions that suit your needs.
We’ve outlined numerous alternatives in the section below to obtain a home loan even without genuine savings.
Finding the right lender
We have a few lenders in our panel offering home loans with no genuine savings requirement:
- You may borrow up to 95% of the value of the property.
- Rates of interest are roughly the same as those for a regular loan.
- Your asset situation, income, and employment stability should all be favourable.
- Although it can come from nearly any source, a deposit is still required.
- A guarantor loan is something to consider if you have no deposit.
No two applicants are the same, and you may need some home loan features more than others. Discuss your financial circumstances with us at Mortgage Pros and we’ll let you know how we can help.
Leveraging rent as genuine savings
For prospective homebuyers, using their rent payments as genuine savings might be helpful, especially if they rent while saving for a down payment.
Rent payments can help you comply with the deposit requirements for a house loan, even if not all lenders accept them as genuine savings.
Generally, you must fulfil the requirements listed below:
- You are currently renting.
- Most lenders want at least 12 months of rental history; however, some will consider three months of consistently on-time rent payments.
- You rent privately or through a registered property manager (private rentals vary).
- The borrowers on the loan application and the renters on the lease must match.
If you meet the conditions above, the right lender may consider your three-month rent payment in exchange for genuine savings with one of our lenders.
Non-genuine savings home loan
Money you recently obtained from sources like inheritance, gifts, or personal loans is called non-genuine savings. This money hasn’t been in your account for at least three months, and you didn’t save it.
The lender can conclude that the borrower needs an established saving practice if they use these sources for their deposit.
You can still utilise your non-genuine savings toward your deposit; however, this varies from lender to lender.
Crucial mistakes to avoid
Did you know many people who have saved a deposit still get their applications rejected?
A misstep or two in your savings behaviour may significantly impact your application strength, especially if you’re keeping the money out of your bank account where lenders can assess it.
Here are a few frequent mistakes to avoid when building your genuine savings:
- Savings in a friend’s or family member’s account: In Asian families, it’s common for people to maintain their savings in a friend’s or relative’s account. With some lenders, you can still borrow up to 90%.
- Loan from a friend or relative: While most lenders don’t view this as genuine savings, we can assist you in borrowing up to 90% of the property’s value!
- Savings abroad: New arrivals to Australia, especially those with a 457 visa, frequently maintain some of their savings abroad. We know lenders who will accept this as real savings and let you borrow up to 90% of the home’s value.
- Savings under joint names: Under cases where one individual is purchasing the property alone, certain banks won’t take savings stored in a joint bank account into account. However, one of our lenders can let you borrow up to 90% of the property’s value.
- Savings moved from another account: This is permitted as long as the names on each account match yours and your statements demonstrate that the originating account has received regular contributions for at least three months.
How you can grow your genuine savings
Growing your genuine savings requires financial discipline, effective money management, and a long-term commitment to your financial goals.
Whether you’re saving for a down payment on a home or building an emergency fund, here are some strategies to help you grow your genuine savings:
- Make a thorough budget outlining your income and expenses to start. Knowing where your money is going is the first step in determining where you can make savings and expense reductions.
- You can help one another if you put your budget on paper and gain your partner’s approval.
- Avoid emotional spending; it happens to many people. Instead, do something free of charge.
- You can save hundreds of dollars annually if you plan and follow a weekly menu.
- Ask for reductions on everything, even your interest rate, if you have been a consistent customer of your bank or phone company.
- Old items and clothes can be sold online even if you don’t use them anymore because they might be valuable to someone else.
- Repairing appliances is much less expensive than buying new ones, especially regarding household equipment and machines.
- By cancelling unused credit cards and memberships, you may free up space in your wallet and save hundreds of dollars annually.
Nevertheless, the best course of action is to consult with a financial advisor to determine your ideal savings and spending plan.
How our mortgage professionals can help
Maximising your deposit with genuine savings is essential to realise your goal of becoming a homeowner.
You improve your chances of getting a loan by showcasing your financial stability and self-discipline and positioning yourself for long-term homeownership success.
Working with a mortgage expert can significantly improve your chances of obtaining a house loan, particularly if you have particular needs or unique financial conditions.
Our senior mortgage brokers at Mortgage Pros can speed up your loan application process, ensure you meet genuine savings requirements, and give you confidence while negotiating the challenging world of home financing.
Talk to us and we’ll determine if your down payment qualifies as genuine savings, if your rental history is significant, and whether you can get a loan without genuine savings.
For more information on how to get closer to your ideal home, call one of our mortgage brokers at 1300 030 388 or enquire online.