The term Genuine Savings refers to the funds that you have saved genuinely and gradually over time, usually between three to six months. It excludes gifts, tax refunds, one-off payments from the sale of assets, such as you car, Home Owner Grants, and work bonuses. The term ‘Genuine Savings’ is one that is quite fluid in that many lenders and LMI insurers will have their definition.
Generally speaking, genuine savings include the following:
- Savings that you have held for three months or more.
- Term deposits with terms lasting more than three months.
- May include equity in your current property.
- Shares or managed funds that you have held for at least three months.
Funds that you have salary sacrificed under the First Home Super Saver Scheme.
There are always exceptions to various rules; one lender will consider the First Home Deposit Scheme as genuine savings, while others will some won’t require genuine savings at all. In some cases the increased risk of not providing various details may translate to a higher interest rate.
The early takeaway from the above is that if you’re looking to purchase a home you should endeavour to save as much as you can over at least a 6-month period. In essence you’re demonstrating a ‘habit’ of incrementally saving funds consistently.
Genuine Savings Versus Regular Savings
Genuine Savings differ from Regular Savings in that – as described above – your genuine savings can take the form of term deposits, shares, and other similar investments if you have maintained them over time without significant withdrawals.
Gifts as Genuine Savings
There are banks and conditions that will evaluate a gift as genuine savings if left untouched. This may also apply to an inheritance. In some cases a letter noting the origin of funds may be required.
Banks require the Genuine Savings because they need assurances that you have a capacity to service a loan. If you can’t save money, or don’t have the ability to incrementally increase your savings, you won’t necessarily have the ability to service the debt imposed by way of a mortgage.
Keep in mind that LMI Insurers have differing policies to banks on what constitutes Genuine Savings’, and very different definitions on the application of a gift, so check in with us to clarify your particular circumstances.
No Genuine Savings Home Loans
Products are made available in the market that allow you to take out a loan without genuine savings but various conditions apply. in some cases you can borrow up to 95% without genuine savings but a number of conditions apply. For example, the purchase should normally be for an existing house (under 2.2 hectares) by applicants with stable employment and in a good financial position. You’ll also want to be free of defaults or adverse credit listings.
The LMI requirement with a no-genuine savings home loan cannot always be capitalised; that is, not all loans allow you to include the LMI into the amount you would like to borrow. In fact, there’s only two ‘good’ loans that permit this capitalisation and they tend to be the products we recommend over others.
These loans vary from lender to lender, and your circumstances will likely position you in one over another, so please make contact with us.