What are genuine savings and how do they affect a home loan application?

When applying for a home loan, one of the most important factors lenders consider is the amount of genuine savings you have. Genuine savings are funds that have been saved over time and are not borrowed or gifted. This is an important factor for lenders to consider as it demonstrates your ability to save and manage your finances.

So, what exactly are genuine savings and how do they affect a home loan application?

What are genuine savings?

Genuine savings are funds that have been saved over time and are not borrowed or gifted. This means that the money must have been saved from your own income or assets. Examples of genuine savings include:

• Regular savings from your income

• Money saved from the sale of an asset

• Money saved from an inheritance

• Money saved from a bonus or commission

• Money saved from a tax refund

• Money saved from a windfall

How do genuine savings affect a home loan application?

When applying for a home loan, lenders will look at your genuine savings as a way to assess your ability to save and manage your finances. This is because it demonstrates that you have the capacity to save money over time and are not relying on borrowed or gifted funds to purchase a property.

The amount of genuine savings you have will also affect the amount of money you can borrow. Generally, lenders will require you to have at least 5% of the purchase price saved as genuine savings. This is known as a home loan deposit.

Having a home loan deposit can also help you to secure a better interest rate on your loan. This is because lenders will view you as a lower risk borrower if you have a deposit.

In addition to this, having a home loan deposit can also help you to avoid paying lenders mortgage insurance (LMI). LMI is an insurance policy that protects the lender in the event that you default on your loan. Generally, lenders will require you to pay LMI if you have a loan-to-value ratio (LVR) of more than 80%. Having a home loan deposit can help to reduce your LVR and avoid paying LMI.

Finally, having a home loan deposit can also help to speed up the loan approval process. This is because lenders will have less paperwork to process and will be able to assess your application more quickly.

In summary, genuine savings are an important factor for lenders to consider when assessing a home loan application. Having a home loan deposit can help to secure a better interest rate, avoid paying lenders mortgage insurance and speed up the loan approval process. Therefore, it is important to start saving as soon as possible if you are looking to purchase a property.

Truth be told, there are plenty of ways to evidence genuine savings, such as regular savings account deposits, term deposits, or a combination of both. We want to help you navigate this process

Broadbeach Mortgage Brokers can help you understand what lenders are looking for when it comes to genuine savings and how they assess your application. We can help you understand the different types of savings products available and how they can be used to evidence genuine savings. With our help, you can be better equipped to understand the home loan application process and get approved fast. We can also help you to present your application in the most favourable way to the lender.