To tell a genuine leather product apart from its vinyl counterpart, simply spray it with water and see if the liquid gets absorbed. The test for 'genuine savings' on a home deposit is not nearly so straightforward.
While most lenders like to see that you have saved a certain amount of money over time towards your deposit – known as genuine savings – the rules around these savings vary between lenders. If you have a large deposit and the funds you’re requesting to borrow are less than 90% of the property value, you may not even have to show genuine savings.
To give you some clarity around what lenders are likely to expect, check out our advice to these popular genuine savings questions. If you have a question not included here, or you need professional help specific to your situation, contact your local Yellow Brick Road mortgage adviser.
Q#1: How much genuine savings do I need?
Lenders usually want home buyers to have a minimum of 5% in genuine savings as part of your home loan deposit, particularly if you're borrowing more than 90% of the property value. In other words, there must be savings of 5% of the property purchase price in the name of at least one of the borrowers.
It's a good idea to set up a regular transfer into your savings account, as lenders will check bank records to confirm that you have a good savings habit. Most lenders want to see the money stays untouched in your savings or term deposit account for at least three months, or in some cases six months.
Q#2: Are shares genuine savings?
If you can show the correct documentation, like share certificates, then any investments are usually acceptable provided they can be converted to cash quickly. Generally, you will have to show you have held them for at least three months.
Q#3: Does paying rent count towards genuine savings?
Some home loan lenders (but not all!) will waive their genuine savings requirement if you can show you have a strong rental history. For example, if you have rented for at least 12 months and have your name on the lease, this demonstrates a level of stability and responsibility.
Some lenders prefer that your lease is managed by a licensed property manager rather than privately. Other lenders might accept as little as three months of rental history provided you meet other reliability criteria, such as paying your rent on time.
Again, criteria vary from lender to lender, but the common denominator is that lenders want to see you can responsibly manage your money and will continue to do so as a homeowner or owner occupier. Paying rent on time serves this purpose in the same way that saving money does.
Q#4: What does genuine savings not include?
Tax refunds, inheritance windfalls, work bonuses, gifts and borrowed funds are typically not considered genuine savings if they have recently landed into your bank account. Any large sums of money are usually required to first sit in your account for at least three months, or even up to six months.
However, some lenders make exceptions, such as if your parents gift you money for a deposit and you pass the lender's eligibility criteria. The rules around what is and what isn't genuine savings are grey. Lenders seek to make individual determinations about whether you're capable of holding onto your money, rather than spending it. Of course, a good savings habit is precisely the kind of discipline you need when taking out a mortgage.
Q#5: Is it possible to get a home loan without genuine savings?
Yes, it is possible, but you will have to meet other specific criteria such as stable employment and income, a decent deposit and proof of assets.
A Family Guarantee Loan is another option for bypassing the genuine savings requirements. This type of loan allows you to use the equity in your parent's property as security on your mortgage.
• Useful reading: Get into Property with a Family Guarantee Loan
If you use a Yellow Brick Road mortgage broker, you can save yourself the work of wading through all these variables. We can help you explore your options and tell you precisely what you need to provide.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.