What Are Genuine Savings for a Home Loan?

The short version

Genuine savings are money you've built up yourself, usually held for at least three months.
Lenders usually ask for genuine savings of 5% of the price when you borrow more than 80% to 90% of the property's value.
Gifts, inheritances and tax refunds usually don't count, though some lenders accept them.

In the world of home loans, the amount of genuine savings a borrower has can be a pivotal factor for lenders when determining the ability of a borrower to service a home loan. But what are 'genuine savings'? We take a look at what genuine savings are and how much you need to secure your home.

Why do banks check for genuine savings?

'Genuine savings' refers to funds that borrowers have saved gradually, generally during a period greater than three months, because banks – and Lenders Mortgage Insurance (LMI) providers if your deposit is less than 20% – need to see that borrowers can service their loans.

Genuine vs non-genuine savings

To ensure that they are able to show genuine savings, borrowers need to be aware of the difference between genuine savings and non-genuine savings.

Genuine savings

Savings accumulated over at least three months in a bank account
Term deposits held for a period of three months or more
Shares or managed funds — or proceeds of sale of these — acquired and held for a period of three months or more
A cash gift (e.g. a gifted deposit from parents) that has been held for three months or more
Contributions made through the First Home Super Saver Scheme
Additional loan repayments (e.g. against a personal loan account or car loan) over and above what is required
Equity in another residential property
Rent payments may be counted by some lenders

Non-genuine savings

Non-genuine savings are funds that you have acquired without saving. These funds will not be considered as genuine savings by most lenders, and include:

Lump sums held in a bank account for less than three months, e.g. from an inheritance, tax refund, monetary gift or borrowing (such as a personal loan)
Proceeds of sale of an asset other than real estate or investments (e.g. car, boat, jewellery)
First Home Owner Grant, although lenders accept it as part of your deposit, it doesn't count as savings
Business funds if the loan applicant has money in a business bank account

Gifted deposits

It is not uncommon for borrowers — particularly first-time home buyers — to be assisted in their home purchase by parents or other family members who provide a gifted deposit. As already stated, gifts are not considered genuine savings, unless loan applicants hold the gifted funds in a bank account for a period of three months or more.

Lenders that don't require genuine savings

Mainstream lenders like banks and building societies are most likely to require home loan applicants to demonstrate genuine savings. However, there are some lenders who will be prepared to grant loans without proof of genuine savings. Although you will still need a deposit, the funds can come from a source not normally counted as genuine savings. In these circumstances your LMI premium cost may be higher, and if you intend to borrow more than 90% of the property purchase price your interest rate may be higher until you have built up some equity in your home and can refinance your loan.

The best way to find one of these specialist lenders is to consult a mortgage broker.

Questions people ask

How much in genuine savings is typically required?

Typically, most lenders would like to see genuine savings of at least 5% of the purchase price when you borrow more than 80% to 85% of the property's value. For example, for a $600,000 home, lenders would like to see genuine savings of $30,000.

How much money should you have in savings when buying a house?

As most lenders require genuine savings of at least 5% of the loan value, this would be a good starting point. However, many lenders look for at least a 10%-20% deposit, and you'll usually need at least 20% in order to avoid paying for Lenders Mortgage Insurance.

Do rental payments count as genuine savings?

Typically, rental payments are not considered genuine savings, but simply an expense. However, some lenders will consider a long-term squeaky-clean rental record in their overall assessment of a borrower's ability to service a loan.

Can you get a loan without genuine savings?

Yes, it is possible. However, this would depend on many other factors such as your income and expenses, any other assets you may hold, and your credit history.

Do I have to prove where my deposit came from?

Yes. Most lenders will require proof of how you obtained your deposit, which can be identified through a review of your bank statements.

Should you tell the real estate agent the amount of your deposit?

Real estate agents can assist you with securing a home and play a role in finding you a property that best suits your needs. In terms of telling an agent the specifics of your deposit, this may be useful to the agent in providing an indication of your budget, so they can show you suitable properties. However, bear in mind that agents are acting primarily for the seller, not for you as the buyer, and you are not obliged to disclose your deposit amount.

Is a deposit paid to a real estate agent or builder considered genuine savings?

This would depend on how the deposit was acquired. If you had used your genuine savings to make payment of a deposit to an agent or builder, then yes, this would still be considered genuine savings, even though now in a different location. If, however, the deposit paid to the agent was a gift, or from another non-genuine savings source, then it would not count as genuine savings.

What are genuine savings?