What are genuine savings?

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.

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.