What’s the difference between genuine savings and non-genuine savings?

It’s likely that you already know you need to provide a deposit to qualify for a home loan. That’s not all your lender will require however. Many lenders also want to see how you saved that deposit, especially if you wish to borrow more than 80 per cent of the property’s price. While it may seem unnecessary, your ability to save money can tell a lender a lot about your credibility as a borrower. 

Generally, if you can show a lender you have the discipline to save money regularly, they’re likely to consider you a lesser risk than someone who finds it hard to save. Lenders usually assume regular savers to be more financially disciplined and less likely to default on a mortgage. 

It’s also worth knowing that most lenders consider two types of savings when assessing your home loan application. These are known as genuine and non-genuine savings. Most lenders prefer if you hold at least five per cent of your deposit in genuine savings (money you have saved for yourself over time). The term non-genuine savings refers to money you have received as a gift or windfall. If you’re borrowing more than 80 per cent of the property’s price, having genuine savings might improve your chances of mortgage approval and qualifying for a competitive interest rate. 

Genuine savings vs non-genuine savings 

Lenders typically want to see whether your deposit was saved up over time in order to assess your monthly repayment capacity. They prefer if your deposit is made of genuine savings - or the money you saved yourself over a period of time - as this indicates you are able to live well within your means while also creating a cash surplus for meeting your future goals. Additionally, a regular savings habit demonstrates financial discipline and increases a lender’s confidence in your ability to repay the loan. 

Some lenders may ask for bank statements to confirm whether your savings are made up of the money you earned and saved. It’s also preferred that the savings are held in your account for at least three months to qualify as genuine savings. It may thus be a good idea to start building your savings several months before applying for a home loan by trying to regularly park some money in a high interest savings account or your preferred savings method. You may even consider locking away your savings in a term deposit if you think you’ll be tempted to use the money if it’s readily available to you.

Genuine savings generally include:

• Savings held in your bank account for a continuous duration of three months or more.
• Gift money (or deposits from other sources) held in your account for more than three months without being drawn upon.
• Term deposits held for three months or more.
• Sale proceeds of a property or shares held by you for at least three months.
• Salary sacrificed funds under the First Home Super Saver Scheme.
• Some lenders may also accept a strong rental history as proof of genuine savings. 

Non-genuine savings refers to funds you haven’t saved over time but received as a gift or a windfall gain. An inheritance from a family member, gift money from parents, and even your annual bonus from work or a tax refund constitute non-genuine savings. However,  if you received the funds in your account and didn’t draw on them for three months, some lenders may treat the amount as part of your genuine savings. 

Non-genuine savings generally include:

• Any gift from family or friends.
• An inheritance.
• Money received from the sale of an asset, such as a car.
• Equity from an existing property.
• Sale of shares.
• Work bonus.
• Tax refunds.
• Money received under the First Home Owner Grant (FHOG).

Growing your genuine savings

The amount of money you save and the interest you earn on it are important factors in determining how long it would take for you to reach your savings goal. If you’re trying to save for a home loan deposit, you might be able to boost your savings by preparing a household budget as an initial step to eliminate wasteful spending. It’s also worth exploring different savings options to grow your savings faster in times of low interest rates. 

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