Genuine Savings Vs Non Genuine Savings – What is the Difference?

With the record increase in home prices across major states, one question I get frequently asked by customers is how much savings do I need and can it be a gift?

Genuine savings as been a requirement from most lenders since post GFC days and is basically a way for lenders to verify our ability to save money if you are applying for a minimal deposit home loan.

What is genuine savings?
A typical lender expects at least 5 per cent of the deposit to come from genuine savings. Let’s take RP Data CoreLogic’s five-capital city average median house price for instance – $686,590. A property with this price would require a deposit of around $68,700, where genuine savings would have to be worth at least $34,350.

But what exactly are genuine savings? Generally, this simply refers to money you have accumulated over the course of at least three months, and can include:
  • Money in a savings account, which will be evidenced by the bank statements you provide (3 months)
  • A term deposit (Held for 3 months)
  • Equity in an existing property (value minus current debt against it)
  • Shares (held for 3 months)
  • Perfect rental history (demonstrated over 6 months) confirmed by letter from the agent and cannot be for a property leased out privately

You can even make use of gifts or an inheritance, as long as you’ve held them in a savings account for around this same period. Interestingly, Aussies may be particularly well-placed to benefit from this. According to a 2013 report from HSBC, Australians are the most generous people in the world when it comes to inheritances, and 60 per cent of retirees expect to leave one.

What is non-genuine savings?
There are also a number of monetary sources that don’t count as genuine savings. One common source of a deposit is a financial contribution from your parents or other relatives. As stated above, unless this has been held in a savings account under your name for at least three months, a lender is unlikely to count it.

Another typical one is the funds that come from the various First Home Owner Grants around the states. As long as you buy a new home, or build a new one with a construction loan, the government could provide you with anything from $10,000 to $15,000 toward buying your first property, depending on the state you’re in. Most lenders will not consider this genuine savings, nor will they count stamp duty concessions.

Finally, neither borrowed funds nor the sale of an asset, such as a car, fall under the category of genuine savings for most lenders. In order to build this up, you’ll have to take a long-term approach and plan your property purchase in advance, rather than treat it as something you can save for in a matter of a few weeks.

If you need help at all with a minimal deposit home loan please give me a call to discuss 0403 084 762. Happy saving =)