Genuine savings are a way for lenders to risk rate a client. What constitutes as genuine savings varies from lender to lender, and in some cases, it may not be required at all.
In the lending industry, the term genuine savings is used to define whether the funds that are to be used as a deposit by a borrower have been saved genuinely over a period of time.
Genuine savings are a way for lenders to risk rate a client. What constitutes as genuine savings varies from lender to lender, and in some cases, it may not be required at all.
This article entails the important aspects of genuine savings to help with your loan application.
Why is Genuine Savings required?
To grant you the loan, most of the lenders require you to prove that you have genuine savings. Majority of the lenders require 5% of security value in genuine savings. Let’s say, if you wish to purchase a $250,000 home, you’ll need $12,500 in genuine savings.
You must have additional savings to pay for the expenses that are associated with a purchase. This may include solicitor’s fees, stamp duty, government charges and other costs.
Generally, lenders and their insurers want to see that savings have been accumulated or held over a period of three months. This may sound simple but it can get pretty confusing.
- Some lenders are happy to see savings accumulate over a period of three months. So, a $300 deposit each week will give you genuine savings of $3,600 in 12 weeks.
- Some lenders require savings to be held for three months. So, for example, the entire $6,000 was there for 12 weeks. If it drops below $6,000, then the maximum value will be considered genuine savings.
- Some lenders also require information about the source of your funds even if it was there for three months.
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Is Genuine Saving Always Required?
Whether or not genuine saving is required depends on the type of loan and the lender. Generally, genuine savings are not required for any loan that is below 80% of your home’s value. Some lenders may need genuine savings for 85% home value. Most of them require it for a loan that is above 90% of your home’s value.
What counts as Genuine Savings?
The following are generally considered as genuine savings:
- Savings in a bank account held or accumulated over three months.
- Shares held for three months.
- Inheritance held for three months.
- Gift held for three months.
- Equity in the residential property.
Some banks demand a saving history of six months instead of three months required by most lenders.
What are Not Genuine Savings?
It is also important to understand what is not considered as genuine savings. The following are not classified as genuine savings:
- A savings plan.
- First Home Owners Grant.
- Borrowed funds.
- Your tax refund.
- A work bonus.
- Any money held in a business account.
- Money gained from selling an asset like a car, jewellery, etc.
- Rebates subsidies from a vendor, etc.
What to do when you have no Genuine Savings?
There are some options for you when you do not have genuine savings. These are:
- Use a lender that does not require genuine savings. Some lenders consider lending without a proof of genuine savings.
- Use a guarantor. This means that the property of someone close to you (mostly a family member) will be used to guarantee the deposit amount.
If you are facing problems with your loan application or want to learn more about genuine savings, get in touch with Josh Financial Services as our experts can help you work through your individual situation.
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