When applying for a home loan you’re usually asked to provide a lot of different information, including how much money you’ve saved.
These savings will be the deposit that you put towards the purchase of your new home. You may also be asked questions about how you’ve saved your deposit, as this is one way lenders consider whether you have the capacity to pay your home loan repayments every month. Generally, lenders will distinguish between what they call ‘genuine’ savings and ‘non-genuine’ savings.
Genuine savings have been saved up gradually over time. So if you’ve diligently put away $250 each month over two years you’ll have $6000 (plus any interest) to include on your home loan application. Generally lenders require deposit of at least 5% of savings in a separate account saved over three months. By saving a little every month, you can demonstrate that you are able to budget and have a habit of saving. Sometimes just showing that you can save regularly for even as little as three months is enough to show genuine savings.
Even if you haven’t been able to save a little every month, it is still possible to have a deposit from what are called non-genuine savings. These are sums of money that may have been gifted to you or received as a lump sum from a transaction, but have not been genuinely saved over time. For example, you may have inherited $5000 from your aunt, or sold your car with the money put towards your new home. Even the amount you receive from a first home owner grant and monetary gifts from a family member, are all considered non-genuine savings.
Non-genuine savings can include:
- Gifts and inheritance
- Equity in an existing property
- Tax refunds
- Sale of an asset
- Sale of shares
Gifts and lump sums: non-genuine or genuine?
Funds and lump sums that have been gifted to you are usually considered to be non-genuine savings. However, if you receive these funds and put them into a savings account where they are left untouched for generally three months minimum, then these funds can actually be considered to be genuine savings by a lender. Keep this in mind if you receive a lump sum.
What can I do with non-genuine savings?
If your savings are considered to be non-genuine you may still be able to use those funds to purchase your new home because other factors may be considered to determine if you are eligible for a home loan.
Every lender has different rules around savings requirements, whether genuine or non-genuine. Give us a call on 13 73 77 and one of our Lending Specialists can discuss your home loan application. At Pepper, we consider your individual circumstances as a whole, rather than reject your application based on a predetermined list of criteria.