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What are genuine savings?

Vidhu Bajaj avatar
Vidhu Bajaj
- 4 min read
What are genuine savings?

Buying your first home is exciting, but can also be stressful. For instance, saving a 20 per cent deposit for a house could take several years for most couples. While you might be able to borrow with a lower deposit with some lenders, you’ll be required to pay for Lenders Mortgage Insurance, which could add thousands of dollars to your total costs. 

Additionally, a lender may want to determine how you saved your deposit to assess your financial situation and repayment capacity. That’s why some lenders ask you to have at least a part of your deposit in genuine savings – which refers to the money saved by you over time from your own income. Any part of your savings acquired as a windfall (including an inheritance, gift, bonus or even your tax refund) is not likely to pass the genuine savings test. 

However, what qualifies as genuine savings may also differ between lenders. For example, some lenders may count deposits from sources other than your own income towards genuine savings as long as they remain deposited in your account for three months without being accessed.

Why do I need genuine savings to qualify for a home loan?

If you’re borrowing more than 90 per cent of the property’s price, most lenders will require you to prove that you have at least five per cent of the property’s value in genuine savings. This helps demonstrate to the lender that you’ve been saving regularly. It also shows that you don’t spend all your income, that you handle your expenses well and manage to save some surplus each month, which could be used towards your mortgage repayments once you buy a house.

Another reason why you may need genuine savings is to satisfy the requirements of the LMI provider. Most low deposit home loans require you to buy Lenders Mortgage Insurance or LMI to protect the interests of the lender in case of default. As a result, your application for a low deposit home loan must be approved by the insurer (LMI provider) in addition to the lender to qualify for a home loan.

What constitutes genuine savings?

If you’re planning to buy a home soon, it may be worth putting aside as much money as possible to build your genuine savings and maximise the size of your deposit. Even if you can’t save the full 20 per cent, a larger deposit could help reduce the cost of LMI and also decrease your overall borrowing amount. 

As mentioned before, it’s often good to have at least a part of the deposit in genuine savings. The rest of your deposit could be made of non-genuine savings, including gifted money and windfall gains, such as an inheritance from a relative. Do remember that any funds you receive under the First Home Owner’s Grant can be used to beef up your deposit but don’t count as genuine savings.

In some situations, some lenders may even waive off the genuine savings requirements if you are borrowing 80 per cent of the property’s value or less. However, the exact requirement may differ between lenders. You may want to speak with a mortgage broker to find out about lenders who are more likely to approve your home loan, given the size of your deposit and genuine savings.

Genuine savings for your deposit may include:

 

  •  Money saved or held in a bank account in your name for a minimum duration of three months
  •  Any term deposits held by you for a minimum period of three months
  •  Proceeds from the sale of investments, such as shares, that have been held by you for more than three months
  •  If you’ve been consistently paying extra towards a loan repayment for at least three months, some lenders may count this money as genuine savings. Some might even accept an unblemished rental history as proof of genuine savings.
  •  Any equity you hold in a residential property or the sale proceeds from your home are also counted as genuine savings.
  •  Any funds withdrawn from your superannuation account under the First Home Super Saver Scheme constitute genuine savings.

If you’re not sure about the nature of your savings, it could help speaking with a mortgage broker to discuss your requirements and apply for a suitable home loan.

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Product database updated 15 Jul, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.