When embarking on the journey of homeownership, the path to securing a mortgage is often paved with complexities and unique terminologies. Among these, the concept of ‘non-genuine savings’ often emerges as a perplexing hurdle for many prospective homeowners.
In this comprehensive guide, we’ll demystify non-genuine savings, outlining their significance, implications, and how they differ from genuine savings in the context of obtaining a home loan. Be sure to consult one of our top listed mortgage brokers in Sydney and Melbourne for professional guidance.
What Are Non-Genuine Savings?
Non-genuine savings refer to funds that haven’t been saved over time through regular deposits or savings plans. These can include monetary gifts, tax refunds, bonuses from work, or the sale of non-financial assets.
While these funds certainly contribute to your capacity to make a down payment on a property, lenders view them differently from genuine savings when assessing your home loan application.
Genuine vs. Non-Genuine Savings: The Key Differences
The primary distinction between genuine and non-genuine savings lies in their origin and accumulation over time. Genuine savings are accrued over a period, typically three to six months, and reflect your ability to save and manage finances responsibly.
Examples of what is considered genuine savings include regular contributions to a savings bank account, term deposits, or shares. On the other hand, non-genuine savings are typically one-off injections of funds that do not demonstrate an ongoing saving habit.
Why Do Lenders Care?
Lenders care about the distinction between what is considered genuine savings and what is not. This is because it significantly impacts their assessment of an applicant’s financial behaviour and risk profile.
Genuine savings, accumulated over time through regular deposits, serve as a testament to an individual’s financial discipline and stability. They indicate a borrower’s capability to manage their finances responsibly, suggesting a lower risk of default.
On the other hand, non-genuine savings, such as a windfall or a gift, do not provide the same evidence of financial prudence. From the lender’s perspective, relying solely on non-genuine savings could signal potential financial instability or a lack of long-term saving habits.
This distinction is crucial for lenders as they aim to mitigate risk and ensure that borrowers can sustainably manage their loan repayments over time – particularly if they have a genuine savings policy. Understanding this concern helps applicants present their financial situation more favourably, highlighting their ability to responsibly manage loan obligations, regardless of the source of the savings.
Navigating Non-Genuine Savings in Your Home Loan Application
The journey towards securing a home loan often involves a deep dive into one’s finances, with lenders scrutinising every aspect of an applicant’s financial health.
Among various considerations, the distinction between genuine and non-genuine savings plays a critical role in the evaluation process. When approaching the home loan application process, it’s important to understand that many lenders require genuine savings as part of their criteria.
This can also involve having to prove genuine savings. Understanding and navigating non-genuine savings can unlock doors to loan approval for many prospective homeowners. Below, we explore strategic approaches to leverage non-genuine savings in your home loan application.
Full Disclosure: The Foundation of Trust
Transparency with your lender about the source of your funds is paramount. Whether your savings come from a gift, a bonus, or the sale of an asset, full disclosure establishes a foundation of trust. Honesty in your application prevents potential issues down the line and can lead to a more favourable assessment by showcasing your integrity and the legitimacy of your financial resources.
Combining Savings: Strengthening Your Application
Mixing non-genuine savings with sufficient genuine savings can significantly enhance your loan application and may meet the lender’s genuine savings policy. Lenders are keen to see evidence of genuine savings, which reflects your ability to save money over time — a sign of financial discipline.
Depending on how much genuine savings you have — and even if your genuine savings and savings history are modest — their presence alongside your non-genuine savings demonstrates a commitment to saving and financial stability, making you a more attractive candidate to lenders.
Lender Flexibility: Finding the Right Match
The stance on non-genuine savings varies widely among lenders. Some may have stringent genuine savings policies, while others may offer more flexibility. Their policies and how stringent they view your application, will also be based on the loan to value ratio of your home loan.
It’s essential to conduct thorough research or work with a mortgage broker to identify lenders that are more accommodating of non-genuine savings. Choosing a lender that aligns with your financial situation and understanding can make a significant difference in your application’s outcome.
Lender’s Mortgage Insurance (LMI) and Non-Genuine Savings
When non-gen savings account for less than 20% of the property’s purchase price (your loan to value ratio is 80%), you may be required to pay Lender’s Mortgage Insurance (LMI). While this adds an additional cost, it also opens up possibilities.
Lenders might be more willing to accept non-gen savings if LMI is part of the equation, as it reduces their risk. Understanding the role of LMI and how it relates to your savings can provide additional pathways to loan approval.
Exploring Guarantor Options
Having a guarantor, such as a family member who agrees to be responsible for the loan if you cannot make payments, can alleviate lender concerns regarding non-genuine savings.
This option can be particularly powerful, as it directly addresses the lender’s risk considerations, making them more inclined to approve your application despite the nature of your savings.
Demonstrating Financial Responsibility Beyond Savings
Your savings are just one part of your financial picture. Showcasing your overall financial responsibility can also influence a lender’s decision. Regular, on-time bill payments, maintaining a good credit score, and having a stable employment history are all indicators of financial reliability.
These factors can sometimes outweigh concerns regarding the origin of your savings, highlighting your experience with managed funds and ability to stay on top of financial commitments effectively.
Navigating non-genuine savings in your home loan application requires a balanced approach, combining transparency, strategic financial planning, and a thorough understanding of lender preferences. By taking these steps, you can enhance your loan application, making homeownership a more attainable goal, regardless of the nature of your savings.
Final Thoughts
The journey to homeownership is unique for everyone, and the composition of your savings is just one piece of the puzzle. While viewed differently by lenders, non-genuine savings do not represent an insurmountable obstacle.
By understanding how lenders view these funds and strategically planning your application, you can navigate the home loan process more effectively. Remember, the key is transparency, preparation, and choosing the right lender for your circumstances.
In sum, non-genuine savings play a crucial role in the landscape of home loan applications in Australia. By demystifying their impact and understanding how to present them effectively, prospective homeowners can better position themselves in the competitive mortgage market.
Whether through combining savings types, choosing a flexible lender, or demonstrating financial responsibility in other areas, there are multiple paths to achieving your homeownership dreams, even when your savings don’t fit the traditional mold. Be sure to consult one of our top listed mortgage brokers in Sydney and Melbourne for professional guidance.
FAQs on Non-Genuine Savings
Non-genuine savings refer to funds that have not been saved gradually over time from regular income. Instead, these funds may come from sources like gifts, tax refunds, sale of assets, or bonuses, and are used for a home loan deposit.
Genuine savings are funds accumulated over a period, usually three to six months, demonstrating consistent saving habits. Non-genuine savings, on the other hand, come from one-off lump sum payments or transfers that don’t reflect ongoing saving behavior.
Yes, you can use non-genuine savings for a home loan deposit. However, lenders may have stricter criteria for loans relying on non-genuine savings, often requiring a larger deposit or additional documentation to prove financial stability.
Sources of non-genuine savings include gifts from family, tax refunds, bonuses, sale of assets, inheritance, and borrowed funds. These are typically one-off amounts rather than regular savings.
To demonstrate financial reliability, provide evidence of stable income, low debt levels, and responsible credit history. Lenders may also require a larger deposit or additional guarantor support if non-genuine savings are used.
Disadvantages of using non-genuine savings can include stricter loan conditions, higher deposit requirements, and potentially higher interest rates. Lenders may view non-genuine savings as less reliable, impacting loan approval and terms.
Yes, a lender can reject a home loan application if the savings are non-genuine and do not meet their criteria. It’s essential to check with your lender about their specific requirements and policies regarding non-genuine savings.
The amount of your deposit that can come from non-genuine savings varies by lender. Some may allow a portion, such as 5-10%, while others might require a higher percentage of genuine savings. Confirm with your lender for their specific requirements.
If you lack sufficient genuine savings, consider saving consistently over time to build genuine savings, seeking a guarantor, or exploring government assistance programs for first-time homebuyers. Consulting with a mortgage broker can also provide tailored advice.
A mortgage broker can help by assessing your financial situation, identifying suitable lenders, and guiding you through the application process. They can provide advice on improving your financial profile and finding loan options that accommodate non-genuine savings.
MANSOUR SOLTANI
Mansour has spent more than two decades involved in the purchase and sale of real estate, acquiring both investment and commercial properties throughout Australia, including in major cities and smaller regional locations.
He is the proprietor of a finance brokerage firm, overseeing a portfolio worth in excess of 75 million in loans and serving a diverse clientele across Australia and a regular contributor to money.com.au. This has equipped him with extensive knowledge in various investment tactics, allowing him to offer significant insight.
