Do you need genuine savings for a house deposit?

When applying for a home loan, you might need something called ‘genuine savings.’ But what is it and how important is it to your loan application? Read on to learn everything you need to know about genuine savings for your home loan.

What are genuine savings?

Genuine savings are what lenders describe as savings accumulated over a period of time. This type of savings is different from regular savings sitting your bank account. For savings to be considered ‘genuine’ they mustbe maintained.

The following are often classed as genuine savings:

• Savings held for at least three months
• Term deposits with terms lasting more than three months
• Funds that have been salary sacrificed under the First Home Super Saver Scheme
• Shares or managed funds that you have held for a minimum of three months
• Inheritance funds held for at least three months
• Equity in your current property

Generally, funds you’ve held for at least three months can count as genuine savings. Also, make sure that the savings are in an account under your name so it can be considered by the lender.

What are non-genuine savings?

If genuine savings refer to wealth you’ve amassed over time, non-genuine savings areassets you’ve only recently acquired. Non-genuine savings are:

• Gifts or inheritances
• Tax refunds
• Work bonuses
• The First Home Owners Grant
• Asset sales (such as a car)
• Share sales
• Money you have borrowed from someone else
• Rent payments (though this can vary depending on the lender's policy)
• Grants or bursaries received

The good news is these non-genuine savings don’t stay non-genuine forever. If you’ve held non-genuine savings in the same account for at least three months, they can be counted as genuine savings.

For instance, if you received money as a gift or inheritance, as long as it’s been in your account for longer than three months, then it counts as genuine savings.

Why do lenders look for genuine savings for a home loan?

Having genuine savings is important because it shows lenders your ability to save money consistently and over time. Serviceability is an important part of the lending process because lenders need to make sure they're giving a loan to someone who has the ability to repay it.

Each lender has its own genuine savings policies to ensure borrowers won’t default on their loans. The amount you borrow can also affect your chance to be approved for a loan.

How much genuine savings do you need for a home loan?

The rule of thumb is that your genuine savings should be at least 5% of the purchase price of the home. Make sure that the money in your savings account has been held for at least three months to be counted as genuine savings.

Some lenders only check genuine savings if you’re giving less than 10% deposit or 90% loan-to-value ratio. Other lenders are stricter and check your genuine savings if you're providing less than15% deposit or over 85% loan-to-value ratio.

When lenders check your genuine savings, they’re also looking at your earnings and spendings. They will look into:

• How much money you spend in any given week or month
• How much you spend compared to your income
• How much debt you have (if any)
• What you spend your money on

Genuine savings is an important factor in a home loan especially if you’re borrowing a large amount of the property value. Every lender has their own policy regarding genuine savings. Always discuss the terms and policies with your lending specialist before making any final decisions.

Do lenders accept rent as genuine savings?

Lenders may consider your rent in place 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:

• Be a renter.
• Have at least six 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. Before you start gathering evidence, find outwhich lenders accept rent as genuine savings first.

Do lenders accept payment to a builder as genuine savings?

Lenders may also consider deposits paid to a builder, developer, or real estate agent as genuine savings as long as it means their criteria. The most common requirements are:

• The deposit must be held by the builder, developer, or lender for over three months.
• The deposit must not be a loan or borrowed.

Depending on lender policy, this could be in place of genuine savings or considered alongside genuine savings.

Tips on building and growing genuine savings for a home loan

If you don’t have a lot of genuine savings, don’t worry! There are plenty of simple ways you can build your genuine savings. Check out these helpful tips:

Automatically transfer a lump sum into your savings

Regularly depositing money to your savings is a great way to build wealth and show lenders you’re able to routinely save money. Automating the transfer also means you won’t be tempted to spending it on things you don’t need.

Budget properly and track your spending

If you have a specific savings goal, like a house deposit, budgeting around that goal is a great idea. Look at your finances and see where you can be spending less. You need a clear understanding of how much money you’re earning and spending monthly (or weekly). Keep an expenses diary or use an app so you can have an easier time monitoring your spending.

Eliminate unnecessary spending

Cutting back on non-essential spending is easier said than done. But it’s a must if you’re trying to save up. This includes small purchases you splurge on every day. Your morning coffee that costs $3.50, for example, may not seem like much but it adds up to $840 in a year.

If the thought of withdrawing money from your savings account to pay for things is too tempting, lock your money away into a term deposit or a savings account that penalises you for making withdrawals.

Invest spare money and bonuses

Received a big tax return or a pay rise at work? Before you go and spend it all, put the money straight towards your savings goal for an instant cash injection.

Are there other alternatives to genuine savings?

If you don’t have genuine savings, rent history, or payment to builders, real estate agents, or developers, it’s not the end of your home loan journey. You can skip the need for genuine savings by having someone sign as guarantor on your home loan. Although this still depends on a lender’s policies.

Begin your home loan journey with hloans.com.au

Use this handy borrowing power calculator so you can find out how much you can borrow for you home loan. If you want to learn more about our low rate home loans, check them out here or talk to our friendly lending specialists.

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