Why you need ‘genuine savings’ when applying for a home loan
- Genuine savings are a requirement of many home lenders
- They are defined as money a home loan applicant has saved themselves over time
- Many lenders do not count gifts, inheritances, asset sales, or tax refunds as genuine savings
Not all money is equal in the eyes of lenders. Just having a stash in a savings account may not be sufficient when it comes to getting a home loan as your savings account balance might not be considered ‘genuine’.
What are genuine savings?
‘Genuine savings’ is a term used by lenders to describe savings that you, yourself, have saved over a period of time, usually between three to six months.
Genuine savings are considered different to regular savings sitting in your bank account which you may have earned by receiving a one-off bonus at work, selling a car, or being gifted some money from someone else.
There’s nothing wrong with having this money – the more, the merrier – but these funds aren’t considered to be genuine savings, that is, you didn’t save them yourself over time.
What qualifies as genuine savings?
What is - and what isn’t - considered genuine savings can be a bit tricky and will ultimately depend on a lender’s criteria, but genuine savings usually consist of any of the following:
Savings held for three months or more
Funds salary sacrificed under the First Home Super Saver Scheme
Shares or managed funds you’ve held for at least three months
Savings.com.au’s Genuine Savings Requirement Calculator can help you work out where you stand with your savings according to what you’re looking to borrow.
Genuine savings vs regular savings
The difference between genuine savings and regular savings is that genuine savings don’t have to be savings in the traditional sense.
They can also be your money that you’ve stored elsewhere or used to invest. For these funds to count as ‘genuine savings’, they need to have been accumulated and maintained over months (if not years), as opposed to a one-off bonus from work or winnings from a lucky night at the casino.
What aren’t genuine savings?
As we’ve already touched on, just having money in your savings account may not be enough for some lenders to approve your home loan application. Lenders generally like to see you’ve been disciplined enough to set a regular amount aside over a period of time, much like you need to do to meet home loan repayments.
As such, the following things generally don’t count as genuine savings:
gifts or inheritances
asset sales (such as a car)
tax refunds
work bonuses
Some exceptions to the rule
There may be exceptions to these rules depending on who you’re borrowing from. For example, some lenders will include gifts or inheritances as genuine savings if you have a letter from the gift giver, or estate executor in the instance of an inheritance, saying the gift is indeed a gift and not a loan that needs to be paid back.
In some cases, regular rent payments may also be counted as genuine savings if you’ve always paid them on time for at least three to 12 months, as long as your name is on both the lease and the home loan application. Again, this will depend on the lender’s borrowing criteria.
Holding your genuine savings
While you may have built up a decent amount in genuine savings over time, many lenders will not take kindly to you withdrawing some of them before you apply for a loan, particularly if it's to finance another major purchase like a car.
The original amount (before your purchase) won't be recognised as genuine savings (which makes sense seeing you've spent some of it).
Try to keep building your genuine savings by adding to them rather than subtracting. This way they can be put towards a higher deposit amount, reducing your home loan amount and saving you money in interest in the process.
How much saving is enough for a home loan?
How much ‘genuine savings’ you’ll need to show can depend on your deposit. Generally, the bigger the deposit, the less genuine savings you’ll need, if any at all:
80% LVR (20% deposit): genuine savings are generally not required
85-90% LVR (15-10% deposit): genuine savings may be required
More than 90% LVR (Less than 10% deposit): genuine savings likely required
95% LVR (5% deposit): you’ll need to show genuine savings
100% LVR (No deposit): genuine savings generally aren’t required if you use a guarantor on your home loan
Why do lenders look for genuine savings?
Lenders assessing your ability to repay a home loan, or ‘loan serviceability’, is a crucial part of the lending process. Mandatory responsible lending practices mean lenders need to do their due diligence to ensure a person they’re lending to has the capacity to pay the loan back.
Lenders deem people borrowing a larger share of a property’s value as higher-risk – and why wouldn’t they? In their eyes, someone who has saved for a higher deposit has demonstrated they have a good track record in being responsible with their money.
So, be warned, some lenders will look at your bank accounts and scrutinise your spending habits, noting:
How much money you spend in any given week/month
How this spending compares to the funds coming in (your income)
How much debt you have
The type of things you spend money on (heavy gambling and credit products are particularly frowned upon by most lenders).
Having a savings buffer before taking out a loan will prove to them that you can be trusted with money, boosting your chances of approval.
Savings.com.au’s two cents
If you’re applying for a home loan with a lower deposit, there’s a good chance you’ll need to show a short history of strident savings habits totalling around 5% of the home’s value, although there are some lenders out there who won’t require it.
Simply put, the more money you can save for your home deposit and the many fees and costs associated with buying a home, the better. Start stashing some ‘genuine’ savings regardless of whether you need to show them or not. Putting money aside on a regular basis is good practice for servicing a home loan - and many lenders think so too.
How to build your genuine savings
You can build your genuine savings fund the same way you would with your regular savings. Here are some suggestions:
Automatically transfer a lump sum into your savings account every pay day
Eliminate unnecessary transactions
Invest spare cash and bank any bonuses you earn
To make sure you don’t spend your genuine savings stash, keep it in a separate, no-fee, high-interest savings account that doesn’t make withdrawing from it too easy.
Other costs of getting a home loan
While deposits are an important component of securing a home loan, there are other expenses you’ll also need to be saving for.
Purchasing a property comes with a host of other fees and expenses including lender fees, stamp duty, Lenders Mortgage Insurance (if required), conveyancing fees, and more.
Put simply, your savings will need to cover more than your home loan deposit so make sure you take that into account.
Finding the best home loan
While there are some costs you can’t avoid, securing the best home loan for your purposes can save you thousands of dollars over the course of your loan. The lenders below have some of the lowest interest rates on the market for owner occupiers and are a good place to start looking:
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Frequently asked questions
1. Does rent count as genuine savings?
As we’ve touched on, rent can be considered genuine savings if you pay it on time, every time for at least three to 12 months, as long as your name is on both the lease and on the home loan application. However, this may depend on the lender you apply to.
2. Can I get a home loan with no savings?
If you want to secure a home loan without a deposit, having a guarantor is really your only option. If you can't get a guarantor, the maximum amount you can borrow from most lenders is typically 95% of the property's value.
See also: Which lenders offer 95% LVR home loans?
3. What is the best account to save for a house?
A high-interest savings account or a term deposit can be good places to store your hard-earned savings for a home deposit. Look for a savings account paying good interest with no (or minimal) conditions to achieve it and preferably, with no or low fees.
See also: Compare high-interest savings accounts
4. How can I save a house deposit fast?
There are many strategies to fast track your house deposit savings. Some of the big-ticket items include moving in with family or into a share house to save money on rent. It’s also imperative to examine your budget to see where you can cut non-essential spending. You could consider investing some money in high-growth assets such as shares or ETFs but keep in mind these investments come with higher risks than savings accounts and term deposits, particularly in the short term.
See also: How to save up for a house deposit
5. How do I save for a house if I live payday to payday?
If you’re barely scraping by until your next pay day, try taking a good hard look at what you're spending (you can use a spending tracker app for this), make a budget, eliminate debts, cut down on unnecessary expenses, and put that money into your savings account instead.
Over time, you may be surprised by how much you can save if you make it a priority. Also, if you're a first home buyer, be aware of government grants you may be eligible for, such as state and territory first homeowner grants, the federal government’s 5% Deposit Scheme, stamp duty concessions and waivers, and the First Home Super Saver scheme.