Genuine savings and funds to complete
It is a common industry-wide policy that home loan applicants must have 5% of the purchase price of a property saved for at least three months in an account in their own name – this is referred to as ‘genuine savings’.
For example, Sam and Ashe have located a property they like with an agreed price of $400,000. Therefore Sam and Ashe would need to have held or accumulated at least $20,000 in an account for a minimum of three months to qualify for the genuine savings policy.
Gifts from family cannot be included in this genuine savings calculation. However lenders only check three months’ worth of statements, so if the deposit was made from another source before the start of the three-month timeframe, it would not be evident to lenders.
The second part of having enough funds to purchase a home is called ’funds to complete’.
For example:
So in the above example the borrowers would need to prove they have $52,000 in savings to be able to purchase the property – this amount is their funds to complete.
In lending applications over 80% LVR, borrowers must prove both the genuine savings and funds to complete policies are met.
Bringing the two concepts together from our scenario above, Sam and Ashe need to have $52,000 as a minimum, AND $20,000 of the total funds have to be in an account in their own names.
This is where gifts from relatives and other sources can help. If Sam and Ashe knew someone who was willing to give the couple the difference between their $20,000 genuine savings and the $52,000 they need in total, this would be acceptable to many lenders.
Loaned funds from family, where the funds are expected to be repaid, can also be acceptable as long as the genuine savings are held by the borrower, in this case Sam and Ashe. However the ability to repay both loans will need to be considered by the lender to ensure the borrowers can afford them.
There are mortgage insurance considerations, which I have not taken into account in this article. You can learn more about lenders mortgage insurance (LMI) in my Glossary: What is LMI? article.
