Home Loan Rate – Australia

What are genuine savings?

The majority of Australian lenders have a policy requiring you to have “genuine savings” before they will approve your mortgage. In effect, it is proof of your ability to manage your money effectively and live within your means.

Genuine savings is not necessarily money saved in a savings account, it can come in many forms and each lender has their own policies regarding what is and what is not genuine savings. As a general rule if you are borrowing over 80% LVR then you need to prove 5% of the purchase price as genuine savings.

Common genuine savings types

These types of genuine savings are regularly accepted by most major lenders:

• Savings that have been made or held in an account for three months or more (including First Home Saver Accounts).
• Shares or managed funds that have been held for three months or more.
• Term deposits that have been held for three months or more.

Ideally your savings should be held in a separate account to your day to day spending and the balance of your account should be increasing over the three month period. Any large lump sum deposits during the three month period will not be considered as genuine savings.

What is not genuine savings?

The deposit for your new home can come from many different sources. The vast majority of sources that do not involve you saving the money yourself will not be considered as genuine savings. Some examples of deposit types that are not accepted as genuine savings are:

• Financial contributions from your family or parents (e.g. gifts / loans).
• Loan from a friend.
• Personal loans / cash out from credit cards.
• Vendor / builder rebates, cashbacks or discounts.
• Pay in advance from your work.
• Money saved in cash (i.e. not in a bank account).

As a general rule if it doesn’t meet the genuine savings criteria listed above then it will not be considered as genuine savings.

Don’t worry too much! You may qualify for a no genuine savings mortgage, if you apply with the right lender this requirement may be waived. In most cases the cost of a no genuine savings home loan is very similar to a loan with a requirement for genuine savings.

Grey areas…

The policy used by lenders to assess genuine savings is very complex, and in addition to this there are some types of savings that can be accepted on an exception basis. The secret to getting approved is to apply with a lender that accepts the type of genuine savings that you can provide.

Some examples of genuine savings that may or may not be accepted by the lender are:

• Equity in existing real estate (i.e. you own a property already).
• Extra repayments on your debts made over the past three to six months.
• Rent payments (must be through a property manager and have been 12 months in your current residence).
• Tax refund (must be currently renting to be accepted).
• Inheritance (must be currently renting to be accepted).
• Sale of a non-real estate asset (must be currently renting to be accepted).
• Commission or bonuses from your job (must be currently renting to be accepted).
• Money that comes from a non-genuine source (e.g. a gift) that have been held in a savings account for three months or more.

Please refer to the specialist mortgage brokers at the Home Loan Experts if you would like to know more about using one of these methods to prove genuine savings. You can view their page on genuine savings for more information.

Do the major banks require genuine savings?

Yes, at present all of the major banks have a requirement for genuine savings. ANZ & CBA tend to be quite strict with this requirement while Westpac (WBC), NAB & St George (SGB) have slightly more flexible policies. Please note that all of them are relatively strict when compared to lenders that do not require genuine savings at all and have similarly priced mortgages!

In addition to this the two major LMI providers Genworth and QBE LMI both have requirements for genuine savings under their standard products. Both will accept no genuine savings loans under their non-standard LMI products however the LMI premium may be higher and credit assessment will be significantly stricter.

There is no question about it, banks and lenders often require genuine savings in order to qualify for a loan.  However, this is not always the case.  Loans without genuine savings are possible, and can be made as long as you are in the right situation.  

You can be the proud recipient of a gift, or be the beneficiary in an estate proceeding where you are made an heir to a large amount of cash, or you made a windfall in the stock market by playing it smart.  All of the above mentioned items are not genuine savings but are viable deposit substitutes.  All that genuine savings does is make it less risky for the banks when they give out and approve a loan.  However, it is still not a guarantee that the repayments will be paid.  The same thing goes for no genuine savings, the banks and lenders may be taking more risks, but it does not immediately mean that the person with no savings will not be able to make the repayments.

Thus, all a person has to do is to prove that they have enough money to make a certain deposit amount, and that it does not have to be genuine.  The only difference is that the money is not kept in the bank for 3 to 6 months, which is usually the main indication whether a certain amount is genuine or not.

This means if you are in such a situation where you have enough money to make a deposit, but the only problem is that it is not genuine and you are fortunate to have such an amount on hand, then you can consult us, the home loan experts.  We can provide you with the necessary information on no genuine savings loans, and how to maximize their use.  Enquire online now for free!

The Labor Government has recently passed legislation which will see the introduction of First Home Saver Accounts, as promised by Prime Minister Rudd in his election campaign. By providing a combination of lower taxes and Government contribution, the new accounts are intended to offer a simple, tax effective solution to help first home buyers kick start saving for their first home. These new accounts will be available to potential Australian first home buyers from financial institutions, including banks and some super funds, as of 1 October 2008.

According to the eligibility criteria, in order to open a First Home Saver Account, the taxpayer needs to:

be at least 18 and under 65 years of age;
have a tax file number;
be an Australian resident for taxation purposes;
have never owned a home in Australia that has been their main residence;
have never previously had a First Home Saver Account.

There are a number of restrictions and conditions that distinguish the First Home Saver Account from the regular savings products that are currently offered by financial institutions. When opening and holding an account the following conditions must be adhered to:

The account can only be in one name. No joint accounts are permitted, however it is possible for those who want to purchase a property together to combine the monies from their individual accounts.

Each individual can only have one account.

Deposits can only be made from after-tax income; this means that it is not possible to use salary sacrificing in order to make deposits into a First Home Saver Account.

Account holders must deposit a minimum of $1,000 in four separate, although not necessarily consecutive, financial years before the balance can be withdrawn.

The account limit is capped at $75,000 for the 2008/09 financial year, to be indexed for subsequent years.

All of the money that is deposited into a First Home Saver Account must remain in the account until the entire amount is withdrawn as a lump sum. Once it is withdrawn, the monies must be used within 6 months towards building or buying a first home. In addition to this, the first home buyer/s must also meet the occupancy rule. The occupancy rule dictates that the newly acquired property must be lived in by the account holder as their main residence for at least six months. The six month period must begin within 12 months of the settlement date or building completion.

If it occurs that the account holder decides not to go ahead with building or buying their first home, the money from the account must then be deposited into their superannuation fund.

There are further elements of the First Home Saver Account that set it apart from traditional savings accounts. These provide significant benefits to the account holder through offering:

Competitive variable interest rates

Any earnings on the account are taxed at a minimal rate of 15%, and this is payable by the account provider.

The Government will make a contribution of 17% on the first $5,000 deposited into the account per each year, resulting in a maximum contribution of $850.

Additionally, First Home Saver Account Holders are still entitled to apply for the First Home Owner Grant. This is yet another financial leg-up for potential first home buyers.

The First Home Saver Accounts are a welcome addition for future generations of home buyers. The accounts, with the benefit of Government contributions and reduced tax rates will make the possibility of purchasing a first home a reality for a wider range of people, in a shorter length of time.

As with any financial decision it is wise to seek the advice of professional accountants and financial planners before acting. This will help to ensure that you have considered all of the necessary facts and are making the correct choice for your situation. If you have any questions or would like advice regarding the First Home Saver Accounts or any other financial decisions contact the The Quinn Group on 1300 QUINNS or click here to submit an online enquiry.