Funnily enough, not all money is equal in the eyes of lenders. Just having a stash in a savings account may not be sufficient when it comes to getting a home loan as your savings account balance might not be considered ‘genuine’.
What are genuine savings?
‘Genuine savings’ is a term used by lenders to describe savings that you yourself have saved over a period of time, usually between three to six months. Genuine savings are considered different to regular savings sitting in your bank account which you may have earned by receiving a one-off bonus at work, selling a car, or being gifted some money from someone else.
There’s nothing wrong with having this money – the more, the merrier – but these funds aren’t considered to be genuine savings, that is, you didn’t save them yourself over time.
What is - and what isn’t - considered genuine savings can be a bit tricky and will ultimately depend on a lender’s criteria, but genuine savings usually consist of any of the following:
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Savings held for three months or more
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Funds salary sacrificed under the First Home Super Saver Scheme
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Shares or managed funds you’ve held for at least three months
Savings.com.au’s Genuine Savings Requirement Calculator can help you work out where you stand with your savings according to what you’re looking to borrow.
Genuine savings vs regular savings
The difference between genuine savings and regular savings is that genuine savings don’t have to be savings in the traditional sense. They can also be your money that you’ve stored elsewhere or used to invest. And for these funds to count as ‘genuine savings’, they need to have been accumulated and maintained over months (if not years), as opposed to a one-off bonus from work or winnings from a good night at the casino.
What aren’t genuine savings?
As we’ve already touched on, just having money in your savings account may not be enough for some lenders to approve your home loan application. Lenders generally like to see you’ve been disciplined enough to set a regular amount aside over a period of time, much like you need to do to meet home loan repayments.
As such, the following things generally don’t count as genuine savings:
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Gifts or inheritances
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Asset sales (such as a car)
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Tax refunds
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Work bonuses
There will be exceptions to these rules depending on who you’re borrowing from. For example, some lenders will include gifts or inheritances as genuine savings if you have a letter from the gift giver, or estate executor in the instance of an inheritance, saying the gift is indeed a gift and not a loan that needs to be paid back.
In some cases, regular rent payments may also be counted as genuine savings if you’ve always paid them on time for at least three to 12 months, as long as your name is on both the lease and the home loan application. Again, this will depend on the lender’s borrowing criteria.
How much saving is enough for a home loan?
How much ‘genuine savings’ you’ll need to show can depend on your deposit. Generally, the bigger the deposit, the less genuine savings you’ll need, if any at all:
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80% LVR (20% deposit): genuine savings are not required
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85-90% LVR (15-10% deposit): genuine savings may be required
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More than 90% LVR (Less than 10% deposit): genuine savings likely required
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95% LVR (5% deposit): you’ll need to show genuine savings
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100% LVR (No deposit): genuine savings generally aren’t required if you use a guarantor on your home loan
You’ll need to have saved at least 5% of the property’s purchase price as genuine savings when it’s required. For example, 5% genuine savings on a $700,000 property is $35,000. This amount may be part of your home deposit, or some lenders might like to see it separate from your home deposit if that’s come from sources that are not genuine savings.
Example of what’s not genuine savings:
Say you want to purchase that same property worth $700,000, and the lender requires genuine savings of $35,000. Over six months, you build your savings account from $20,000 to $35,000, but right before you apply for the loan you withdraw $10,000 to help finance a new car. That would leave your genuine savings at $25,000, which likely wouldn’t be enough to secure a loan.
An alternative would be to keep saving for a higher deposit so genuine savings aren’t required but this may not always be possible, particularly in a fast-rising property market.
Why do lenders look for genuine savings?
Lenders assessing your ability to repay a home loan, or ‘loan serviceability’, is a crucial part of the lending process. Mandatory responsible lending practices mean lenders need to do their due diligence to ensure a person they’re lending to has the capacity to pay the loan back.
Lenders deem people borrowing a larger share of a property’s value as higher-risk – and why wouldn’t they? In their eyes, someone who has saved for a higher deposit has demonstrated they have a good track record in being responsible with their money.
So, be warned, some lenders will look at your bank accounts and scrutinise your spending habits, noting:
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How much money you spend in any given week/month
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How this spending compares to the funds coming in (your income)
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How much debt you have
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The type of things you spend money on (heavy gambling and credit products are particularly frowned upon by most lenders).
Having a savings buffer before taking out a loan will prove to them that you can be trusted with money, boosting your chances of approval.
How to build your genuine savings
You can build your genuine savings fund the same way you would with your regular savings. Here are some suggestions:
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Automatically transfer a lump sum into your savings account every payday
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Eliminate unnecessary transactions
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Invest spare cash and bank any bonuses you earn
To make sure you don’t spend your genuine savings stash, keep it in a separate, no-fee, high-interest savings account that doesn’t make withdrawing from it too easy.
Other costs of getting a home loan
While deposits are an important component of securing a home loan, there are other expenses you’ll need to be saving for. As at November 2024, a 20% deposit on a median-priced house in Australia is $162,000, a considerable sum. But purchasing a property comes with a host of other fees and expenses including lender fees, stamp duty, Lenders Mortgage Insurance (if required), conveyancing fees, and more.
Put simply, your savings will need to cover more than your home loan deposit so make sure you take that into account.
Finding the best home loan
While there are some costs you can’t avoid, securing the best home loan for your purposes can save you thousands of dollars over the course of your loan. The lenders below have some of the lowest interest rates on the market for owner occupiers and are a good place to start looking:
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.08% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% | 4.6 Star Customer Ratings |
| Promoted | Disclosure | |||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% | Apply in minutes |
| Promoted | Disclosure | |||||||||
6.09% p.a. | 6.11% p.a. | $3,027 | Principal & Interest | Variable | $0 | $250 | 60% |
| Promoted | Disclosure |
Frequently asked questions
1. Does rent count as genuine savings?
As we’ve touched on, rent can be considered genuine savings if you pay it on time, every time for at least three to 12 months, as long as your name is on both the lease and on the home loan application. However, this may depend on the lender you apply to.
2. Can I get a home loan with no savings?
If you want to secure a home loan without a deposit, having a guarantor is really your only option. If you can't get a guarantor, the maximum amount you can borrow from most lenders is typically 95% of the property's value.
See also: Which lenders offer 95% LVR home loans?
3. What is the best account to save for a house?
A high-interest savings account or a term deposit can be good places to store your hard-earned savings for a home deposit. Look for a savings account paying good interest with no (or minimal) conditions to achieve it and preferably, with no or low fees.
See also: Compare high-interest savings accounts
4. How can I save a house deposit fast?
There are many strategies to fast track your house deposit savings. Some of the big-ticket items include moving in with family or into a share house to save money on rent. It’s also imperative to examine your budget to see where you can cut non-essential spending. You could consider investing some money in high-growth assets such as shares or ETFs but keep in mind these investments come with higher risks than savings accounts and term deposits, particularly in the short term.
See also: How to save up for a house deposit
5. How do I save for a house if I live payday to payday?
If you’re barely scraping by until your next payday, try taking a good hard look at what you're spending (you can use a spending tracker app for this), make a budget, eliminate debts, cut down on unnecessary expenses, and put that money into your savings account instead.
Over time, you may be surprised by how much you can save if you make it a priority. Also, if you're a first home buyer, be aware of government grants you may be eligible for, such as state and territory first homeowner grants, the federal government’s First Home Guarantee scheme, stamp duty concessions and waivers, and the First Home Super Saver scheme.
Savings.com.au’s two cents
If you’re applying for a home loan with a lower deposit, there’s a good chance you’ll need to show a short history of strident savings habits totalling around 5% of the home’s value, although there are some lenders out there who won’t require it.
Simply put, the more money you can save for your home deposit and the many fees and costs associated with buying a home, the better. Start stashing some ‘genuine’ savings regardless of whether you need to show them or not. Putting money aside on a regular basis is good practice for servicing a home loan - and many lenders think so too.
First published on August 2021
Photo by Caleb George on Unsplash
Disclaimers
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
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