Genuine Savings Explained
When you are purchasing a property and applying for a home loan, you are likely to come across a term “Genuine Savings” through your lender or broker. Genuine savings refers to money you’ve saved up over time. Lenders like to see this because it shows you can manage money well and might be a reliable borrower. It’s essentially funds you’ve saved yourself, usually for at least three months.
How much genuine savings do you need?
Most lenders ask for a minimum of 5% of the purchase price as a genuine savings. For example if you are purchasing a property for $600,000, lenders ask for 5% of that i.e. $30,000 as genuine savings.
What is considered as Genuine savings?
- Savings held in bank account for 1-3 months depending upon lenders
- Term deposits held for at least three months.
- Managed funds and shares held for more than three months.
- Equity in residential property from previous property purchases.
- Funds from the First Home Super Saver Scheme contributed through salary sacrifice.
Why do lenders want to see Genuine savings?
The main reason lenders want to see genuine savings is to demonstrate your ability to save money consistently and over time. Each lender has its own genuine savings policy mostly aligned with the Lenders mortgage insurer’s policy. Ability to save money ensure lenders that borrower is capable of managing finances.
Genuine savings can positively impact your creditworthiness. It shows that you are a reliable borrower who can meet financial obligations.
Some lenders and regulatory bodies may require evidence of genuine savings to comply with lending standards and responsible lending practices.
Ultimately, genuine savings provide lenders with confidence in your ability to repay the loan and reduce their risk.
When do you need Genuine savings?
You typically need genuine savings when buying a home and you’re borrowing more than 90% of the property’s value.
Mostly, first home buyers falls into this category as they are likely to have low deposit and/or at times they are purchasing home under Home Guarantee scheme.
The specific requirements for genuine savings can vary depending on the lender, the type of loan, and your individual circumstances.
Do lenders accept rent as genuine savings?
Some lenders may consider your rent that you are paying in lieu of genuine savings as long as you have good rental history. If you are using your rent payments as genuine savings, there are some additional requirements such as:
- Have at least 6 to 12 months of good rental history.
- Rent privately or through a licensed property manager.
- As a borrower, your name must be on the lease.
- You will need to have this information verified by asking your landlord or property manager for a copy of the rental ledger. This will be used as evidence so you can use your rent in lieu of genuine savings.
Ready to purchase property and want to find out more about genuine savings, please contact us.
** Please note that this information is general advice only and has not been prepared considering your specific financial situation, objectives, or needs. Before acting on any information, consider seeking professional financial advice to determine if it’s appropriate for you.**
