Genuine savings refer to liquid assets a mortgage borrower in Victoria has saved over time. Generally, they should represent at least 5% of your deposit. This way, you can prove to your lender that you’re financially ready to buy a master-planned estate around Werribee, Victoria or any other Melbourne suburb.
To successfully apply for a mortgage, make sure that your genuine savings can withstand scrutiny. Lenders usually have strict policies regarding these funds for insurance purposes.
A home loan applicant who can’t pay a deposit worth 20% of the property value has to pay for Lenders Mortgage Insurance (LMI). It protects a lender from severe financial losses when a borrower stops repayment. Without producing compelling evidence that 5% of the borrower’s deposit was genuine savings, the lender won’t get paid by the LMI provider.
Here are the reasons why a lender might question your genuine savings:
Funds Held for Less Than Three Months
Usually, genuine savings only considered legitimate when they’re held for at least three months in a bank account. A few lenders even request a six-month saving history to study a borrower’s capacity to pay further.
Lump-sum Deposits
Large deposits are always questionable. A lender would know how much should go into your bank account regularly after sharing about your monthly income. If more money was deposited to your name than what you make, prepare an explanation with proof.
More often than not, lump sums come from sources other than an employer. Gifts, inheritances and bonuses are good examples. These types of funds are technically not considered genuine savings since they’re typically not fruits of a borrower’s labour. Fortunately, many lenders can accept them as genuine savings for as long as they’re held for over three months and backed by supporting documents.
Irregular Saving Patterns
A lender would think twice before loaning you hundreds of thousands of dollars if you have fluctuating savings. You might be asked about the transactions shown in your bank account. If you have poor spending habits or inconsistent deposits, you might appear incapable of managing mortgage repayment.
Cash Acquired Through Debt
Lenders are smart and mature enough to expect some borrowers to obtain other debts to top up their savings. You can’t trick one by not disclosing any personal loans you may have taken out in the past. If your story is different from what your credit report says, your home loan application might be rejected.
Proceeds From the Sale of Other Assets
Raising funds by selling any possession like a car and mixing them with your genuine savings can show you in a bad light. Doing so will inflate your savings, giving a lender some reason to suspect your capacity to save and handle repayment. Declare any sale proceeds proactively to help your lender distinguish genuine savings from other funds.
Some lenders offer loans with no genuine saving requirement. If you can’t pay your share of the property price up front, choose your lender carefully to qualify for such a mortgage. However, challenge yourself to save an adequate deposit because it will determine your readiness to manage a home loan and save you on interest over time.
