Genuine Savings

The essence of genuine savings is to confirm and verify the savings pattern of a borrower looking at purchasing a home. The logic is simple, if a client could save money consistently over a 3 or 6 month period, then he/she has the capacity, in terms of responsibility, to repay a debt having already demonstrated his/her savings ability over time. The requirement is generally for a minimum of 5% of the purchase price of the property.

The requirement is not necessarily a lenders policy. It is predominately a Lender Mortgage Insurers (LMI) policy. As most first home buyers enter the housing market with 3-10% in savings, the requirement for LMI is automatic, and hence a borrower has to conform to the mortgage insurers guidelines. The principle guidelines of LMI is to verify a borrowers overall affordability, and verify a borrower’s genuine savings pattern.

There are many different patterns of savings which could class as genuine savings, and some patterns which do not. Learning these distinctions is paramount in understanding genuine savings policy. The best and most common pattern recognizable is a gradual savings increase in one’s savings account over a 3 month period or more. Refer to below table as an example:

Another genuine savings pattern is having the savings sit in your transaction account or term deposit account etc for a 3 month period or more whilst maintaining a consistent and steady balance over this time.

Yet genuine savings is not restricted to cash savings in a bank account. It can also include the following:

1. Having stocks or shares to the value of your deposit requirement amount for over 3 months

2. Equity in another property

3. Managed funds

4. Bonds