If you’re thinking about buying your first home, you probably already know that saving a sizeable deposit is an important part of the process. However, did you know that a percentage of the deposit may need to be what the bank considers to be “genuine savings”. This policy may apply where you are borrowing more than 80% of the value of the property.
What is considered Genuine Savings?
“Genuine savings” are funds that have been saved over time by a home loan applicant. Lenders require proof of genuine savings to satisfy themselves that you are responsible with your money and can show a track record of being able to put money aside to attain a financial goal. This shows a prospective lender that you will be able to make repayments throughout the term of the loan. Examples of genuine savings include:
- Term deposits held for at least 3 months;
- Investment in a managed funds portfolio or direct shares held for at least 3 months
- Savings held in a bank account and accumulated over at least 3 months;
- Equity in real estate.
There are some lenders who are now waiving the requirement for genuine savings where the loan is between 85% and 90% of the value of the property, depending upon individual lender policy. This means that your deposit can be a gift from your parents, a lotto win or a tax refund. Lenders are trying to appeal to those who don’t want to wait three months to accumulate the necessary genuine savings.
What are Non-genuine Savings?
The difference between genuine and non-genuine savings can be confusing and individual lenders have their own policies, which can complicate matters further. Some examples of non-genuine savings are listed below:
- Inheritance
- Tax refund
- Gifts form third parties
- First Home Owner’s Grant
- Borrowed funds (such as a personal loan)
Make sure you give us a call today so we can work out which lender you will benefit from the most!