Recently, Australian lenders have introduced a genuine savings policy for home loans, which is often confusing and frustrating. We hope to simplify this with this article.
Genuine savings was implemented in response to the increasing number of first home buyers applying for mortgages with no deposit and no savings. Remember when 100% loans were available? Well, they are now a thing of the past and been replaced with a policy that states you need to have some form of savings if you wish to borrow with a low deposit.
The best way to getting approval is to apply with the right lender for your situation as lenders all have differing policies. We can help you determine which bank is right for you. Call us for a chat or complete our quick form on the right.
It is surprising to many who are not in the mortgage industry how strict lenders are with their genuine savings policies. The reason they are so strict with genuine savings is due to the Lenders Mortgage Insurance providers. Loans for more than 80% of the property value are insured by an external company. This is to reduce the risk to the lender in the event that you can’t repay the loan.
4 Hot Tips In Genuine Savings
1. Do I need genuine savings?
2. What classifies as genuine savings
3. Using rental history as genuine savings
4. What if I don’t have genuine savings
Do I need genuine savings?
Putting it simply, if you have borrowing up to 80% you can safely say, you will not need to show how you have accumulated or received these funds. However if you are borrowing between 80% – 90%, some lenders may request proof that you have saved a min of 5% of the deposit through income that has been accumulated in a personal bank account. There are also several lenders that do not have this requirement and the funds can come from anywhere.
Borrowing 91% to 95% of the property value
Borrowing with 5%-10% deposit, most major lenders will require 5% in genuine savings. If you don’t have genuine savings, however there are still a small group of lenders that will lend up to 95% with no genuine savings.
If your parents can guarantee your loan using a property they own, then firstly you will not pay LMI and you can borrow up to 105%. This is the only way to borrow more than 95%
What is classified as genuine savings?
Policy does differ slightly between lenders; however as a general rule the following types of savings are considered genuine and can be combined to make up the 5%
• Savings held or accumulated over 3 months.
• Term deposits held for 3 months.
• Shares or managed funds held for 3 months.
• Equity in real estate (varies depending on the lender).
Lump sums are not considered genuine savings, unless they have been in a personal account for a minimum of 3 months.
If you have been renting for 3 months or more
The following deposit types can also be considered as genuine savings. However, you must be able to prove that your rental payments have been made on time for a minimum of three months:
• Gift: The gift must be in your account and a gift letter must be provided by your parents to confirm that the gift is not a loan.
• Bonus/Dividend/Commission payment: Provide a payslip evidencing payment & bank account statements.
• Inheritance: Credit to personal bank account and a letter from the Executor confirming the amount and date that the funds will be received.
• Non-real estate asset sale: Credit to personal bank account with a letter from you confirming the details of the asset that you sold. In most cases this is from the sale of a motor vehicle.
• Tax Refunds: Provide a copy of your Notice of Assessment.
Using rental history as genuine savings
There are also some handy policies like;
• Some banks will waive the requirement for genuine savings if you are currently renting? The requirement is; strong rental history 6-12 months continuous with consistent payment history, lease in the name of the applicant/s and payment being made through a licensed real estate office. The lender will then take any cash funds, which would otherwise not classify as genuine savings, and consider it genuine savings. For example, a gift from a parent, cash funds from sale of vehicle or other asset
What if I do not have genuine savings?
1. If you don’t have genuine savings consider a no savings loan, which is available up to 95% of the property value. You will still need a deposit, although it can come from almost any source. The great news is that the interest rates are usually the same as those for a regular loan!
2. If you have no deposit at all then consider a Guarantor Loan. Whilst some lenders require 5% in genuine savings, there are several others that do not require savings if you have a guarantor and you can borrow up to 105%