Many people outside the mortgage industry are often taken aback by how stringent lenders are with their genuine savings policies. For instance, if you want to buy a property for $400,000, you might need to prove $20,000 (5%) in genuine savings. If you only have $18,000 saved and the remaining $2,000 comes from another source, some lenders will automatically decline your loan.
The reason for these strict policies is due to their Lenders Mortgage Insurance (LMI) providers. Loans that exceed 80% of the property value are insured by an external company, reducing the lender’s risk if you default on the loan.
If a lender needs to make a claim on a mortgage insurance policy because a customer defaults, the mortgage insurer will audit the original approval. If they find that the lender didn’t have evidence of exactly 5% or more in genuine savings when they approved your loan, they won’t pay the insurance claim!
The key to getting approval is to apply with a lender that will accept your situation as part of their standard policy. You can determine how banks will view your situation by using our genuine savings calculator.
Many people who have saved a deposit themselves still get declined because they don’t keep the savings in their own bank account. Here are some common mistakes:
Savings in a relative’s account: It’s common in some cultures for people to keep their savings in a family member’s account. You can still borrow up to 90% with some lenders.
Loan from a friend or family member: Most lenders don’t consider this genuine savings, but we can help you borrow up to 90% of the property value!
Savings in an overseas account: Recent migrants, particularly those on a temporary visa, often keep some savings overseas. We know lenders that will allow you to borrow up to 90% of the property value using this as genuine savings.
Joint account savings: Some banks won’t consider savings held in a joint account if one person is buying the property alone. However, we have lenders that may allow you to borrow up to 90% of the property value.
Transferred savings: This is acceptable as long as the names on each account match your name and your statements show regular deposits over 3 months to the originating account.
Other types of savings may be accepted as genuine savings if you can provide a trail of documents showing where the funds originated. These include:
Savings held in a trust account
Savings in a company name
Savings in a marital partner’s account (if they’re a co-borrower)
Savings in a de facto partner’s account (if they’re a co-borrower)
Banks will scrutinize your savings and analyze how you manage your money.
Stagnant savings: Some lenders only consider savings that are regularly added to as genuine savings. Having a lump sum in an account is not often accepted. However, we have lenders that can consider lump sums if they’ve been held for over 3 months.
Irregular lump-sum deposits: People who receive commission income, bonuses, or who have sold an asset like a car often save in irregular lump sums. Unfortunately, lenders don’t view this as genuine savings because it doesn’t show regular saving ability. We have lenders that can consider this as genuine savings for a loan of up to 90% of the property value!
Savings in redraw: Many people save by making extra repayments on a loan and then redraw these funds when needed. While this is financially responsible, many lenders don’t consider this genuine savings. We know lenders that will consider savings in a loan account!
Spending habits: Any transactions in your savings account will be checked against the information in your application. The bank looks for undisclosed debts, other expenses, or dependents.
Create a budget and involve your partner: This way, you can support each other.
Avoid impulse spending: Replace it with activities that don’t cost money.
Plan a weekly menu and stick to it: This simple step can save you thousands of dollars a year.
Ask for discounts on everything: If you’ve been a loyal customer, ask for a discount, including on your interest rate.
Sell unused items and clothing online: Items collecting dust in your garage may be valuable to someone else.
Repair instead of replacing: It’s cheaper to keep things in working order than buying new appliances.
Cancel unused credit cards and memberships: Save hundreds annually and declutter your wallet.
The best thing you can do is speak with a financial planner to work out the best savings and budgeting strategy for you.
Our mortgage brokers have extensive experience in financing property purchases for people without genuine savings. We can tell you if your deposit will be considered genuine savings, whether you can use your rental history, and if you can qualify for a loan without genuine savings.
📞 Call 1800 NO RIBA (667 422) or Apply Online Now!
