What Are Genuine Savings and Why Do Some Home Loan Lenders Require Them?
Genuine savings generally refers to money that a home loan applicant has saved or held over a period of time and can demonstrate through financial records. Some lenders may require genuine savings, particularly for certain higher loan-to-value ratio applications, because the savings history can form part of their assessment of the borrower’s financial position. What qualifies as genuine savings and how much is required varies between lenders, loan products and individual circumstances.
What Are Genuine Savings?
Saving a deposit is often one of the biggest steps involved in preparing to purchase a home. However, having enough money available for a deposit does not necessarily mean that all of those funds will be treated as genuine savings by a lender. Genuine savings generally refers to funds that have been accumulated or held by the borrower for a period that satisfies the lender’s requirements. Lenders may review bank statements and other financial records to establish where the money came from and how long it has been available. The definition of genuine savings varies between lenders, so borrowers should confirm the requirements that apply to their particular application. For more information on how lenders may review your financial records, read our guide on how bank statements can influence your home loan application.
Why Do Some Lenders Require Genuine Savings?
For some home loan applications, a lender may want evidence that part of the borrower’s contribution has been accumulated or maintained over time. This can provide additional information about the applicant’s financial circumstances and form part of the lender’s broader assessment of the proposed loan. Genuine savings requirements may be particularly relevant where a borrower is seeking finance with a higher loan-to-value ratio (LVR). However, genuine savings are only one part of a home loan assessment. Lenders may also consider income, expenses, existing debts, credit history, available deposit and other factors when determining whether an application meets their lending criteria. If you are applying with a smaller deposit, you may also want to learn more about Lenders Mortgage Insurance (LMI).
What May Count as Genuine Savings?
What qualifies depends on the individual lender’s policy. Money progressively accumulated in a savings account may qualify. Funds that have been held in an applicant’s account for the period required by the lender may also be accepted in some circumstances, even if they were not accumulated through regular deposits. Certain other assets or funds may sometimes be considered, depending on lender policy and the applicant’s circumstances. Because definitions differ, borrowers should avoid assuming that a particular source of funds will automatically satisfy a genuine savings requirement.
What May Not Be Considered Genuine Savings?
Some sources of deposit funds may not satisfy a lender’s definition of genuine savings on their own. For example, money that has only recently been gifted by a family member, proceeds from a recently obtained personal loan or other newly acquired funds may be treated differently from money accumulated or held over time. This does not necessarily mean those funds cannot contribute towards a property purchase. Rather, the lender may apply different requirements or request additional evidence regarding the source of the money.
How Long Do Genuine Savings Need to Be Held?
There is no single timeframe that applies to every Australian lender. Some lenders may require evidence that funds have been saved or held for a particular period, while others may have different policies depending on the loan, LVR and source of the deposit. Rather than relying on a general timeframe, borrowers should check the specific lender requirements relevant to their proposed application.
Genuine Savings and Your Deposit Are Not Necessarily the Same Thing
It is important to distinguish between your overall deposit and the portion that a lender may classify as genuine savings. Your total contribution towards a property purchase may come from several sources. Depending on lender policy and your circumstances, this could include accumulated savings, proceeds from selling another asset, gifts or other eligible funds. A lender may still require a particular portion of the contribution to meet its genuine savings criteria. The exact treatment depends on the lender and application.
What About a Gift From a Family?
Family assistance can play an important role in helping some Australians enter the property market. A financial gift may potentially contribute towards a home deposit, but whether it satisfies a lender’s genuine savings requirements depends on the lender’s policy and the circumstances. The lender may request evidence confirming that the money is genuinely a gift rather than a loan that needs to be repaid. Additional documentation may therefore be required.
Why Documentation Matters
Lenders may request documentation to verify genuine savings and the overall source of a borrower’s deposit. Bank statements can show how funds have accumulated or how long they have remained in an account. If money has come from another source, additional documents may be required to establish where it came from. Providing accurate and complete information is important. Applicants should disclose their financial circumstances truthfully and respond to requests for supporting documentation.
Does Having Genuine Savings Guarantee Home Loan Approval?
No. Demonstrating genuine savings does not guarantee that a home loan application will be approved. A lender generally assesses the overall application, which may include income, employment, expenses, debts, credit history, repayment capacity, the proposed property and other lending criteria. Even where genuine savings requirements are satisfied, the application must still meet the lender’s remaining eligibility and assessment requirements. Likewise, not satisfying one lender’s genuine savings policy does not necessarily indicate how another lender will assess the same circumstances.
Preparing Before Applying for a Home Loan
Understanding where your deposit has come from before applying can help you prepare for questions that may arise during the lending process. Keeping clear records of savings, avoiding assumptions about what a lender will accept and having supporting documents available can make it easier to demonstrate your financial position. If part of your deposit comes from a gift, asset sale or another source, it may also be useful to determine what evidence the lender is likely to request. Preparation cannot guarantee approval, but it can help borrowers better understand the requirements before lodging an application.
Genuine savings can be an important consideration when applying for certain home loans, particularly where the lender requires evidence that part of the borrower’s contribution has been accumulated or held over time. However, there is no universal genuine savings rule that applies to every lender or borrower. What qualifies, how much may be required and how it must be demonstrated depend on the lender, loan structure and individual circumstances. Understanding these requirements before applying can help borrowers prepare their documentation and approach the home loan process with clearer expectations.