Do you have genuine savings? Genuine Savings are the funds that you have saved by yourself over a period of time.
If you are considering entering the property market, be prepared to have a deposit of at least 5% of the property value in order to qualify for a home loan. Or 10% of the property value for investors. Having said this, having the 5% deposit does not automatically qualify you for a home loan.
As well as the 5% deposit, the Bank wants to see that you have achieved genuine savings before they will approve your home loan.
Requirements For Genuine Savings
The requirements vary depending on the lender. Typically, 5% genuine savings must be validated on all mortgage insured loans where base LVR exceeds 85% and generally, the 5% genuine savings are calculated against the:
- Purchase price for the property being purchased; or
- Value of the property for refinances or where unencumbered residential real estate is offered as security
Tier 1 Sources of Genuine Savings
Does the lender consider your ‘savings’ as genuine savings? Genuine savings must be savings that have accumulated for at least 3 months. There are different levels (or tiers) of genuine savings available.
Tier 1 genuine savings can include:
- Personal savings account
- Term deposit accounts
- Real estate equity
- Superannuation which are accessible
- Stocks/shares – this must be publicly listed in the your name
- Second mortgage equity
You need to show evidence of accumulated savings over a minimum 3 month period. If your bank statements show one or more bulk deposits within the 3 month period, the lender may not accept this as genuine savings.
Other evidence which will not be accepted are:
- ATM receipts
- Statutory declarations
- Promissory letters
- Handwritten receipts
It is advisable to check with the lender for what they consider appropriate evidence for their genuine savings. If you need help with lender requirements the OneSite Finance Team can help you check what you need to do to prepare prior to applying for a loan.
Historical rental payments of at least 6 months payment history are an acceptable Tier 1 source of genuine savings. Such payments maybe accepted based on a few criteria. Firstly, the historical rental payments can only be accepted if you are applying for an owner occupied residence. Historical rental payments will not be acceptable if you are applying for an investment property purchase.
Additionally, you must also be the current renter(s) and must be on the lease of the rental property. A licensed Property Manager or Agent needs to be managing the leased property. This cannot be a family member. The Manager/Agent must provide a letter confirming the acceptable 6 months rental payment history, with the tenants’ full name, address, amount paid per cycle and rental ledger. The letter needs to be valid and no more than 3 months from formal application date and the rental ledger needs to be within 6 weeks from formal application date.
Tier 2 Sources of Genuine Savings
Lenders have a second tier of genuine savings’ sources. These need to be accumulated for a minimum period of 3 months just like Tier 1 sources.
Tier 2 sources can include:
- Tax refunds – Notice of Assessment for Tax refunds must be produced
- Bonus/dividends/Commission – payslip must show the Bonus/dividends or commission payments
- Inheritance – a letter from the executor to confirm the amount of the inheritance and the LVR must not exceed 90%
- Non real estate asset sale – your statutory declaration is required, and the LVR must not exceed 90%
Like the Tier 1 sources, Tier 2 sources of genuine savings need to meet certain requirements to be acceptable. You need to be fully prepared before submitting your home loan application and understand what the lender requirements are.
Unacceptable Sources of Genuine Savings
Payments you make to Builders, Developers and Real Estate Agents maybe counted as part of your genuine savings if you have receipts for these payments.
The Builder, Developer or Real Estate Agent must have held the funds for at least 3 months, and the funds used to pay the Builder/Developer/Real Estate Agent must not have been borrowed.
The receipt provided must show when it was originally issued. Evidence is required to show that the money has been in your bank account prior to the payment.
Some lenders will NOT accept some or all of the following as sources of genuine savings:
- First Home Owners Grant or State Government Assistance
- Accounts in Business or Company name
- A deposit that has been borrowed
- Builder Incentive rebates
- Cash holdings
- Compensation payouts
- Gifts – you need to have the gift in your account for at least 3 months for some lenders to accept a gift as genuine savings. The person who gave you the gift needs to write a letter explaining this
- Favourable purchase
- Livestock Sale
- Non real estate asset sale where capitalised LVR exceeds 90%
- Vendor savings plan
Some lenders will still allow you to apply for a home loan even if you have no genuine savings. This is usually only applicable to home loans and not available for investment loans.
If you do not have genuine savings then the banks are generally stricter with their home loan application. It’s important to check the lender’s requirements before proceeding with a home loan application.
What Should You Do?
If you are thinking about getting into the property market, whether it be an owner occupied or investment purposes, it is important to start getting your finances together. Remember, it is not only about the deposit you will need upfront, but you will need to start monitoring your spending habits and to ensure you can show a pattern of genuine savings. Review all the genuine savings you have available and consider increasing your savings months in advance.
Think about the choice of lenders you are considering. Check out their policies and their lending requirements. The OneSite Finance Team can help you with lender requirements and we can help you assess your current financial situation in preparation for the application of your home loan.