What is the difference between genuine and non-genuine savings in a home loan application?

Coming up with genuine savings is a necessary part of the home loan application for most home buyers in Australia. Your ability to prove genuine savings can tell a lender a lot about you as a borrower, so it’s important to grow your savings before you apply for a home loan.

Here we’ll explain what counts as genuine savings and what doesn’t, why lenders require them, and how you can still buy property without them.

What are genuine savings?

Genuine savings is a term lenders use to describe money that a home loan applicant has saved up over a period of time (typically at least three months). So, think about long term savings here. For example, if you’ve been routinely putting aside $500 every month into a high interest savings account for two years, you’ll have saved $12,000 plus interest.

Why do lenders require genuine savings?

Most banks and lenders will require proof of genuine savings in all home loan applications. Genuine savings shows a lender that you are capable of budgeting and managing your finances responsibly. It indicates that you will likely be a low-risk borrower, which is a priority for many lenders.

Even if a large lump sum of money magically appears in your bank account two weeks before you submit your home loan application, it doesn’t tell the lender much about you. They want to know that you’ll be able to responsibly handle a major financial commitment like a mortgage.

Banks will be particularly wary of lending to those borrowing over 80% of the purchase price who don’t have sufficient genuine savings. This is because Lenders Mortgage Insurance (LMI) will be charged and they may be held accountable by insurance providers.

What is counted as genuine savings?

Lenders can have different policies about what they regard as genuine and non-genuine savings, so it’s a good idea to speak to a mortgage broker or the bank directly to learn more.

However, there are are a few things that may be counted as genuine savings:

1. Money held or saved up over at least three months
2. Managed funds and shares that you have held for at least three months
3. Term deposits held for at least three months
4. First Home Super Saver Scheme contributions
5. Equity held in an existing property
6. Profits from the sale of a property

Remember that what one lender considers genuine savings, another lender might consider non-genuine savings. Home equity held in an existing property is a good example of this.

Make sure you keep track of documentation like bank statements to submit as proof of genuine savings.

Does rent count as genuine savings?

Some lenders will consider your rental payments as proof of your capacity to repay a loan, usually in lieu of typical genuine savings. It’s generally better not to rely on rent paid as a substitute for genuine savings as not all lenders will allow this.

Some lenders will even consider consistent, extra repayments towards a personal loan, for example, as a substitute for genuine savings.

What doesn’t count as genuine savings?

Some home buyers will still have savings, even if they haven’t been accumulated in the same way genuine savings are. Typically, non-genuine savings are lump sums of money you have received through a gift or other way.

Non-genuine savings may include things like:

1. Inheritance
2. Gifts
3. Work bonuses
4. Short-term savings (i.e. money saved over less than 3 months)
5. Profits from the sale of a car, or other non-property asset
6. First Home Owners Grant
7. Borrowed money
8. Tax refund
9. Equity held in an existing property (varies between lenders)

Can you get a home loan without genuine savings?

You may be able to still be approved for a home loan even if you don’t have sufficient genuine savings. While you may have options, you will need to come up with a deposit of at least 5% (ideally more) which can come from other non-genuine sources. For borrowers with no deposit, a guarantor loan may be an option to consider.

Speak to a mortgage broker or Lendi Home Loan Specialist for guidance on finding a mortgage that suits your unique situation.

How do I grow my genuine savings?

Growing your genuine savings requires consistent, long term effort. At least three months prior to your home loan application, you need to start accumulating savings. It’s a good idea to divert a fixed amount of money from your paycheck into a savings account each month. Most banks will usually allow you to set up an automatic transfer.

There are lots of great budgeting and savings tips out there, and it’s all about figuring out what works best for you and what you can actually stick with. Not sure where to start? Check out some of our articles on how to save up for a home loan deposit:

• Related: Supercharge your monthly savings with our 8 handy tips
• Related: Savings tips for 2021: how to make your home loan work for you
• Related: How can I save for a property deposit?
• Related: How to get (and stay) financially fit this year
• Related: What to do when you don’t have enough for the deposit

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.