Purchasing your first home is a significant milestone, and one of the key steps in this journey is saving for your deposit. While the amount needed can vary depending on your property goals and the loan you choose, lenders often look closely at your savings history to assess your readiness and ability to manage mortgage repayments. This is where the concept of genuine savings comes into play.
What Are Genuine Savings?
Genuine savings refer to funds that have been accumulated over time through consistent saving efforts, demonstrating a borrower’s financial discipline and ability to set aside money regularly. Lenders use this to evaluate your capacity to repay the loan and to ensure that you are not relying on borrowed funds or gifts alone to meet your deposit requirement.
Typically, lenders require evidence that you have saved a portion of your deposit over a minimum period—often three months or more. This shows a pattern of saving rather than a sudden lump sum appearing in your account.
Why Do Lenders Require Genuine Savings?
Genuine savings provide lenders with confidence that you have the financial discipline to manage ongoing loan repayments. It also helps ensure the deposit is from your own funds and not borrowed money, which could add to your financial risk.
For loans with a high Loan-to-Value Ratio (LVR), especially those above 90%, demonstrating genuine savings is often mandatory. This requirement is also common for government-backed home loan schemes designed to assist first home buyers.
What Counts as Genuine Savings?
Acceptable sources of genuine savings can include:
- Regular deposits into a savings or transaction account over a period of at least three months.
- Funds accumulated in a First Home Saver Account or through the First Home Super Saver Scheme.
- Term deposits held for a minimum period.
- Proceeds from the sale of assets (excluding the property being purchased).
- Rental payment history (some lenders accept evidence of consistent rent payments as a sign of financial commitment).
- Accelerated loan repayments where you have sacrificed savings to pay down debt faster.
What Is Not Considered Genuine Savings?
Certain sources are generally not accepted as genuine savings, such as:
- Gifts or inheritances without evidence of saving behaviour.
- Government grants like the First Home Owner Grant (FHOG).
- Loans or borrowed funds.
- Bonuses or windfalls unless they have been held for a sufficient period.
- Builder or vendor rebates or incentives.
- Proposed savings plans or rental purchase plans.
Tips for Building Genuine Savings
- Start early: The longer you can demonstrate consistent saving, the stronger your genuine savings evidence will be.
- Keep your savings separate: Use a dedicated savings account to build your deposit, making it easier to track your saving pattern.
- Avoid large, unexplained deposits: Regular, smaller deposits are viewed more favourably than sudden large sums.
- Maintain clear records: Keep bank statements and any relevant documentation to verify your savings history.
Regularly Checking Your Credit File
Alongside saving genuine funds, it’s wise to regularly check your credit file. In Australia, you can access your credit report for free every three months from the major credit reporting agencies. Monitoring your credit file helps you identify any errors or defaults that could impact your borrowing capacity and gives you time to address issues before applying for a home loan.
Disclaimer: This information is intended as a general guide only and does not constitute financial advice. Lending criteria, including genuine savings requirements, vary between lenders and loan products. Eligibility depends on individual circumstances. Always seek personalised advice from a qualified mortgage professional before making financial decisions.