If you’re considering purchasing a home soon, you’ll need to understand how genuine savings for home loans works.
What is genuine savings?
Genuine savings has quite a simple definition with every lender (despite each lender being able to have their own definition):
- Money you’ve actually saved, and can prove you saved it.
- Equity in a property.
- Money from sale of assets or gifts must be held in a bank account for at least 3 or 6 months before it’s classified as “genuine savings”.
What is not genuine savings?
Money from virtually any source that hasn’t been earned through your regular income is not considered as genuine savings. Unless it satisfies in the above mentioned scenario’s.
- If your bank has a minimum savings period of 6 months, and lump sum deposit within that period is not genuine savings (if you’ve deposited $2,000 cash in that period you might have to prove the source of the funds – or at least explain it).
- A gift is not savings
- The sale of a car, or other assets do not classify as genuine savings.
How long do I need to hold the savings?
Every bank is different – some have a 3 month saving period, others have a 6 month savings period.
How much genuine savings do I actually need?
If you can satisfy a loophole, you might be able to avoid it completely.
- 5% genuine savings is the magic number that all lenders seem to have adopted.
- Unless of course, your lender doesn’t require genuine savings (see ways to avoid).
It’s worth noting that you have no hope of convincing your lender to go outside their policy on this. They will stick to their rules, so shop around to find a new lender if yours has said no.
When do I need genuine savings?
It depends on the lender, and it depends on your situation.
If you’ve got less than 10 or 15% deposit – there’s a really BIG chance that your lender will require genuine savings proof.
- Most major lenders will lend up to 85% of the property value WITHOUT genuine savings.
- Several lenders will lend up to 90% of the property value WITHOUT genuine savings.
- LUCKILY, some lenders specialise in the non-genuine savings loans, and will lend 95-99% without genuine savings.
How to avoid genuine savings criteria…
Option 1) Family Guarantee
These are very common for first home buyers or first time property investors.
If a family member can act as a guarantor you might be eligible for a No Deposit Home Loan.
Instead of gifting cash, a family member will help with some of their “equity”. It’s a great way for mum and dad to give the kids a head start as well as help them AVOID hefty Lenders Mortgage Insurance premiums.
Option 2) Have you been paying rent?
With impeccable rental history over the last 12 months, at the time of writing, there are at least a couple of excellent lenders (with great rates) that waive the “genuine savings” criteria.
But 5% deposit is still required (can be sourced via First Home Owner Grants, gifts, and sale of assets is OK).
Your name must be on the lease and rental ledger statement for verification must be provided.
Option 3) Pay a higher interest rate
If you’ve got access to the 5% deposit but don’t have the genuine savings, you’ll still have options. You might just have to deal with a slightly higher interest rate for a while.
Option 4) Stop complaining
- Start saving!
- Change your habits, one at a time.
- Start investing a percentage of your income, and slowly increase that percentage as much as possible.
Do yourself a favour and read this book front to back by Tony Robbins.
It’s called “Unshakeable”. You might not relate Tony Robbins with “Wealth Creation advice” but you certainly will after reading this book and understanding the credentials of the participants that helped him create the content.
You CAN achieve real wealth, start taking action today.