The difference between genuine savings and non-genuine savings
It’s common knowledge that when you buy a house you need a deposit. But did you know your lender may also want to see how you’ve saved it? You may think this seems unnecessary, but your savings history is a critical factor in the home loan assessment process. If you can show you have the discipline to save on a regular basis your lender will assume you will be able to meet your regular mortgage repayments.
When you apply for a home loan your deposit is categorised as either genuine or non-genuine savings. Genuine savings are always preferred—and are a requirement if you have less than a deposit of less than 20%. You may still qualify for a home loan if your deposit is not made up of genuine savings, but you may be offered a different rate.
So, what are genuine savings?
To save you from disappointment—and to give you a clear idea of your budget—we recommend applying for conditional approval prior to engaging a builder. That way, when you start researching your options you won’t waste time on building packages that are out of your price range. To get conditional approval, your lender will formally assess your financial situation to give you an indication of how much you could borrow. It is important to note conditional approval is subject to certain conditions, such as the lender’s valuation of the property. Conditional approval is typically valid for 90 days.
Once you have conditional approval it’s time to find your land, designer and licensed builder. Note: it’s still a good idea to include a finance clause in your offer to purchase contract (even if you have conditional approval) to cover any unexpected issues you may encounter with the formal approval process.
What are non-genuine savings?
Non-genuine savings refer to money that you may have received as a gift or inheritance. They are funds that you have not saved over time. That said, if you receive a gift or other lump sum, put it into a savings account for a minimum of 3 months and don’t make any withdrawals, your lender may consider the funds as genuine savings.
Non-genuine savings typically include:
- a gift from family or friends
- an inheritance
- Property equity
- Tax refunds
- Sale of an asset, like a car
- First Home Owner Grant (FHOG)
- Unsecured loans
It’s important to remember that every lender has a different set of requirements so make sure you know what your lender considers an acceptable deposit before applying for a home loan.
If you’d like to find out more call us on 13 SAVE or use our online contact form and one of our lending specialists will call you back at a time convenient to you.
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