If you are looking to borrow over 90% of a property purchase price when applying for a home loan, you are very likely to be asked about your “genuine savings”. So, what are genuine savings exactly? The requirements for, and what constitutes genuine savings may vary from one lender to another.
Continue reading for a general genuine savings definition or call Oak Tree Finances on 0404 403 066, email email@example.com or contact us online now to speak to a mortgage broker and find out how we can help you achieve your dreams of home ownership today.
Genuine Savings Definition
Generally, genuine savings imply that you have savings of at least 5% of the property purchase price that you can evidence as having saved over a longer period of time (usually, this means six months or more). If you want to, for example, buy a house for $750,000 and are looking to borrow $675,000 or more, you will need to show that you have saved at least $37,500. There may be a bit of variance regarding what are genuine savings – under some circumstances, sale of assets or shares may be accounted for as genuine savings by a particular lender’s genuine savings definition, and if you do already own a property, this requirement may be waived.
In more practical terms, having money in your savings account is not always enough, what is and is not considered as genuine savings will often depend on a lender’s genuine savings policy – lenders want to see that you were able to plan and saved for a deposit yourself. The ability to plan, budget and genuinely save a deposit (as opposed to, for example, receiving a lump sum of money such as a work bonus or a tax refund, and then depositing into your savings account), in the eyes of a lender, is a sign of a good and reliable borrower. To that end, genuine savings may include:
- Savings accumulated over a longer period (at least three, and often six or more months)
- Term deposits held over a longer period (three or more months)
- Shares held for a period of at least three months
- Managed funds held for at least three months
- Inheritance funds held for the period of at least three months
For renters, there are lenders who may be willing to take your rental payment track record as the evidence of your ability to meet your home loan repayments – you will likely have to evidence having paid your rent on-time for a minimum period of time on a lease managed by a licensed property manager.
What are Non Genuine Savings?
Non genuine savings on the other hand, do not evidence good, long-term saving habits. The long-term aspect of genuine savings is important because mortgage itself is a long-term commitment and lenders want to see the evidence conscientiousness in the prospective borrower. Examples of non genuine savings may include:
- Lump sum gifts
- Inherited monies
- Tax refund amounts
- Employment bonuses
- Profits from the sales of non-property assets, for example cars or equipment
- First Home Owners Grant
- Borrowed finances
- Short-term savings
Responsible lending practice requires lenders to carry out due diligence in ensuring that the prospective borrower is able to service the loan and repay it over its term. The more you are looking to borrow, the higher the risk to the lender. Conversely, the more you have genuinely saved, the more trustworthy you will appear to be.
What are the Options for Borrowers Without or With a Low Amount in Genuine Savings?
For buyers without any deposit, or those who only have a minimal amount of deposit funds saved, a family pledge home loan may be one of the available avenues for achieving home ownership. In this scenario, a family member may assist as a guarantor by offering the equity in their property, thus removing the lender’s requirement for a deposit, and allowing the borrower to borrow over 100% of the property purchase costs.
Please keep in mind that this article does not consider your specific needs and circumstances, providing only general advice. Please call Oak Tree Finances on 0404 403 066, email firstname.lastname@example.org or get in touch online now, to discuss your situation and talk to us about whether a family pledge loan is right for you. We can assist you with this and other home loan options, depending on your situation, and help you achieve the dream of owning your home.
If you need home loan advice, require more information on what are genuine savings, or if you would like to discuss your specific situation with the mortgage broker Gold Coast trusts for home loans Gold Coast wide and beyond, across the rest of Australia, call us on 0404 403 066, email email@example.com or get in touch online now to get started today.