Applying for a home loan is not as straight forward as it sounds. You can’t simply expect the lender to provide you with all the money you need to make your purchase – without meeting certain conditions, obviously.
For example, if you want to borrow more than 90% of the property’s purchase price, your lender will ask you to provide information about something called genuine savings.
This is the term that lenders will use to define the funds that you – the borrower – have saved gradually, on your own.
If you plan on putting a deposit less than 20% towards your loan, then this deposit needs to be labeled as genuine savings. The lender usually wants to see at least 5% in the form of Genuine Savings and usually when your LVR is above 80% (differs from lender to lender). Basically, they must not depend on non-genuine savings which can be sale of an asset or a tax refund.
If you come with savings that depend on certain other actions, lenders may get nervous and deny your home loan application. However, we have access to lenders who have less strict requirements with genuine savings and can consider non genuine savings and even a lender who does not require any genuine savings at all!
Genuine savings are often savings that have to be held in your name, such as:
1. Equity in certain residential property from your previous property purchases.
2. Any kind of term deposits that you have held for a minimum of three months.
3. Shares and managed funds that you have held for more than three months.
4. Savings in a savings account opened on your name – again, these have to be held for more than three months in order to be eligible as genuine savings.
5. If you have been renting for at least 6 months, we have banks who can consider this as genuine savings!
When you combine all of your genuine savings, they should amount to at least 5% of the value of the property that you want to buy. On top of that, you must have access to these savings before you apply and take out a loan and ultimately occupy the property.
As mentioned above, genuine savings must meet certain criteria in order to be eligible. Too many times, borrowers consider other types of savings as genuine savings and apply for a loan with them in mind. Naturally, this means that their home loan will most likely get denied. If you’re unsure if your savings are genuine or not, contact our office and our mortgage and finance brokers will be more than happy to assist.
Here is what non-genuine savings look like:
1. Lump-sum unexplained deposits on your transaction statement – this turns into genuine savings if the deposit comes from the sale of another one of your properties.
2. Rent payments – some lenders may however approve these as genuine savings.
3. Money from gifts or inheritance – we have some lenders who will however accept this.
4. The money you gain from the sale of assets – cars, and so on.
5. Tax returns.
6. Money being held in a business account.
7. Money that you have borrowed from your friends, acquaintances, and so on.
8. FHOG – the First Home Owner’s Grant – we have some lenders who will however consider this
9. Any bursaries or grants that you have received.
All of the above are not seen as genuine savings mainly because they don’t show that you have good savings habits. After all, they only show that you were able to come across some money that you can use towards a deposit or such.
Any funds that you put towards your home loan must be backed up by something substantial, or else your lender will not consider them as genuine savings.
Lenders Mortgage Insurance (LMI) is what makes lenders so strict about these so-called genuine savings. Such insurance provided by external providers ensure any type of home loan above 80% – LMI is used to protect the lender if you happen to default on your loan.
Therefore, most lenders will come at you with genuine savings policies just to make sure that you are not going to default on your loan and put them in a difficult situation.
If you default, then the Lenders Mortgage Insurance will have to look for evidence showing that you had at least 5% of genuine savings – if you did, then LMI will have to pay out to the lender.
Naturally, if a lender approves your loan without requesting genuine savings and you end up defaulting on it, then the LMI provider will not pay the lender. In short, genuine savings are a way to protect lenders from bad loans, so to speak.
Genuine savings protect both you and your lender. As mentioned above, the lender makes sure that, if you default, they won’t have any difficulties. On the other hand, genuine savings ensure that you will be able to meet your loan repayments and tell the lender that you are a low-risk borrower.
You having genuine savings available to place towards your deposit means that you should not worry about the rest of your home loan. If you were able to save money for a home loan deposit, then you will be able to manage your finances in such a way that you will not end up defaulting.
For any matters related to home loans, savings, and whatnot, feel free to contact our office. We will guide you through the process of finding the loan that suits your needs and we’ll explain everything you need to know about it.
If you have any questions or simply need more information, reach out and contact us today – we’re more than happy to help you! Contact us on on 02 9121 6247 or submit your scenario online.
Whether you’re a first home buyer looking at entering the market or an existing home owner looking at ways to save money on your home loan, we have you covered. We’ve put hundreds of hours of research into these guides to ensure you end up ahead, and it’s completely on the house.
We meet for a consultation, obtain your supporting documents and proceed to structure and package your application for approval knowing exactly what the banks want to see. We also monitor your home loan post approval ensuring you’re home loan suits you and your financial position
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