What are 'genuine savings'?

You’ve got a lump sum in your account and you’re ready to get a home loan, nice! But wait, why is your lender asking about ‘genuine savings?’

Well, when applying for a home loan most lenders will want to see more than just a lump sum sitting in your savings account as a deposit, usually they’ll want to see proof that you’re able to save effectively and manage your money responsibly.

That’s where ‘genuine savings’ come into play. But what are they and how can you show you have them?

We take a look at what is considered genuine savings, what isn’t and how much genuine savings you will need to get a home loan.

What is considered genuine savings?

Genuine savings is a term lenders use to describe funds that a borrower has been able to save gradually over a period of time (usually three to six months).

Every lender will have different policies around genuine savings, so it’s important to chat with your lender about their individual requirements.

However, here’s a few things that are typically considered genuine savings:

• Savings that have been held or accumulated over three months or more in a bank account
• Shares or managed funds held for a period of three months or more
• Term deposits held for at least three months
• Equity held in an existing property
• Contributions made through the First Home Super Saver Scheme
• A cash gift that has been held for three months or more with a letter from the benefactor stating the gift isn’t a loan.

What isn’t considered genuine savings?

Again, what isn’t considered genuine savings will vary from lender to lender, however most lenders won’t consider newly transferred/gifted lump sums of money without documentation of genuine savings.

Other non-genuine savings may also include:

• Money from the sale of a car, motorbike or boat (assets other than real estate or investments)
• Tax refunds
• Pay bonuses 
• Newly acquired inheritance
• Borrowed money

How much in genuine savings is usually required to secure a home loan?

Most lenders will want to see genuine savings of at least 5% of the total home loan amount. For example, if you’re applying for a $450,000 loan, most lenders will want to see $22,500 in genuine savings. The rest of your home loan deposit can come from other sources but you’ll need enough in additional funds to cover any government charges and fees (such as stamp duty and transfer costs).

Why do lenders require genuine savings?

Genuine savings demonstrates to a lender that you can manage your money responsibly, indicating you’ll be able to pay your home loan repayments into the future. This means the risk is lower for the lender because your saving patterns show that you are less likely to default on your mortgage repayments.

Can I use a cash gift as genuine savings?

It’s quite common for family members to give first home buyers cash to put towards their house deposit. If you receive a cash gift from a family member and you want to claim it as genuine savings, most lenders will require you to keep the cash in your account for at least three months and have a letter from your family member stating that the gift is not a loan

Does rent count as genuine savings?

It will depend on the lender whether they will count your rental payments as genuine savings or not. If they do, you’ll usually have to show the lender that:

• you have paid your rent on time for the past three to twelve months,
• your name is on the lease and,
•  your lease is managed by a licensed property manager.

How do I grow my genuine savings?

It’s a good idea to create a consistent savings plan at least three months before applying for a home loan. Some things that could help grow your savings include:

• setting up a regular transfer from your pay to your savings account (if you haven’t already)
• taking out a high interest savings account to lock your money away like a term deposit. This way you’ll be less likely to touch your savings and you’ll also earn a higher interest rate.
• cutting any excessive spending – lenders like to see responsible spending patterns

The main thing is that you find something that works for you and that you can stick with. It’s all about creating healthy savings habits so that you can manage your mortgage repayments in the future.

We’re here to help

Our lending experts are available to help talk through your options. Make an appointment with one of our friendly Mobile Lending Managers, who can contact you by phone, email, video call or home visit at a time that suits you. Call us on 13 8777 or visit us at 400 King William Street, Adelaide between 8am – 5.30pm weekdays or 8am – 2pm Saturdays.