Understanding this concept is crucial for prospective homebuyers, as it can impact their ability to secure a home loan with favourable terms. Let’s delve into the world of non-genuine savings and explore what it means for borrowers.
What are genuine savings?
Genuine savings, as defined by most Australian lenders, are funds that you have saved over a specific period of time. These savings typically include money deposited into a savings account, term deposits, and contributions to investment accounts such as shares or managed funds. Lenders view genuine savings as a reliable indicator of your ability to manage your finances and meet home loan repayments.
Examples of genuine savings include but are not limited to:
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Savings held for at least three to six months
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Money held in a term deposit for an extended period of time
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Contributions to a First Home Saver Account (FHSA)
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Regular savings deposits into a bank account.
What are non-genuine savings?
Non-genuine savings, on the other hand, encompass funds that are not considered as reliable indicators of your financial stability. They typically include sources of funds that have not been genuinely saved over time, or have not been subjected to the same level of scrutiny.
Examples of non-genuine savings include but are not limited to:
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Gifts/windfalls
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Commissions/bonuses
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Inheritance
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Personal loans
Why do lenders care if your savings are genuine or not?
Lenders are cautious when assessing home loan applications because they want to ensure borrowers have the financial capacity to meet their loan obligations. Genuine savings demonstrate your ability to save consistently, which suggests financial discipline and responsibility. Non-genuine savings, on the other hand, may raise concerns about your ability to manage your finances and repay your home loan.
Lenders often require borrowers to have a certain percentage of their deposit in genuine savings to mitigate the risk of loan defaults. The exact requirements can vary from lender to lender, but having a substantial portion of your deposit in genuine savings can improve your chances of loan approval and help you secure a lower interest rate.
What to do if your savings are non-genuine?
Increase your deposit
Save more money in genuine savings accounts to increase the proportion of genuine savings in your deposit.
Time your application
Some lenders may be more lenient with non-genuine savings if you can demonstrate a consistent pattern of saving over time.
Consider alternative lenders
Some non-traditional lenders may have more lenient criteria for non-genuine savings, so it's worth exploring different options.
Seek professional advice
Consult with a home loan broker, who can help you navigate the home loan application process and identify lenders that are more flexible with non-genuine savings.
Non-genuine savings are a common concern for Australian homebuyers seeking a loan. While they may present challenges during the application process, it's important to remember that each lender has its own policies and criteria. By understanding the concept of non-genuine savings and employing strategic financial planning, you can improve your chances of securing a home loan that suits your needs and goals.
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