What Are Genuine Savings?
Buying a property in Australia as an expatriate or a foreign buyer can be challenging, especially when it comes to understanding the concept of genuine savings.
In this comprehensive guide, we’ll break down everything you need to know about genuine savings, including its importance, calculation, and how to overcome the hurdles it presents. Let’s begin!
Genuine Savings: What Is It and Why Does It Matter?
Genuine savings, a term commonly used in the Australian mortgage industry, refers to the funds saved or accumulated by a borrower over a period, usually at least three months.
These funds act as a deposit towards a home loan and demonstrate the borrower’s financial discipline and ability to make regular mortgage repayments.
Get a free Australian mortgage assessment today.
The Importance of Genuine Savings for Expatriates and Foreign Buyers
As an Australian expatriate living overseas or a foreign buyer, understanding genuine savings is crucial for several reasons:
- Lender Requirements: Many Australian lenders require genuine savings as part of their home loan approval process, especially for borrowers seeking a high Loan to Value Ratio (LVR).
- Competitive Interest Rates: Demonstrating genuine savings can help you secure a lower interest rate on your home loan.
- Financial Stability: Establishing a strong savings history shows lenders that you are financially responsible and capable of managing your finances.
Calculation of Genuine Savings
Calculating genuine savings can be confusing, particularly for Australian expatriates and foreign buyers. Here’s a step-by-step guide to understanding the process:
- Identify Acceptable Sources of Genuine Savings: Examples include regular deposits into a savings account, term deposits, shares, and managed funds. Gifts, inheritances, and proceeds from selling assets may also be considered.
- Determine the Time Frame: Lenders typically require a minimum three-month savings history. However, this may vary depending on the lender and your financial situation.
- Calculate the Total Savings: Add up the funds from all acceptable sources, ensuring they meet the lender’s specific genuine savings criteria.
Navigating Lender Policies
Different lenders have varying genuine savings policies, which can impact your eligibility for a home loan. We’ll outline the policies of four major Australian banks:
- ANZ Genuine Savings Policy: ANZ requires at least 5% genuine savings for loans with an LVR greater than 85%. The bank accepts various sources of genuine savings, including regular deposits, term deposits, and managed funds. Additionally, they may consider rental history, shares, and gift funds as part of genuine savings on a case-by-case basis.
- Genuine Savings Commonwealth Bank: The Commonwealth Bank also requires a minimum of 5% genuine savings for loans with an LVR greater than 90%. They consider funds from savings accounts, shares, managed funds, and term deposits as genuine savings. The bank may also accept rental history and gift funds as part of genuine savings, depending on the borrower’s overall financial situation.
- NAB Genuine Savings Policy: NAB requires at least 5% genuine savings for loans with an LVR greater than 80%. Acceptable sources include regular deposits, term deposits, shares, managed funds, and rental history. Like the other banks, NAB may consider gift funds as part of genuine savings under certain circumstances.
- Westpac Genuine Savings Policy: Westpac has a similar approach, requiring at least 5% genuine savings for loans with high LVRs. They accept regular deposits, term deposits, managed funds, shares, and rental history as genuine savings sources. The bank may also consider gift funds and inheritances, depending on the individual borrower’s financial profile.
Find Lenders That Don't Require Genuine Savings: Exploring Your Options
While most Australian lenders require genuine savings, some may be more flexible, particularly for borrowers with a strong financial history. Here are a few tips for finding such lenders:
- Consult a Mortgage Broker: Mortgage brokers have extensive knowledge of the lending market and can help you find lenders with more lenient genuine savings requirements. They can also assist in negotiating better loan terms and interest rates.
- Research Non-Bank Lenders: Non-bank lenders, such as credit unions and building societies, may have more relaxed genuine savings criteria compared to traditional banks. These lenders can offer competitive home loan products, making them an attractive option for expatriates and foreign buyers.
- Consider Low Deposit Home Loans: Some lenders offer low deposit home loans, which require a smaller deposit and may have less stringent genuine savings requirements. Keep in mind that these loans often come with higher interest rates and may require Lenders Mortgage Insurance (LMI).
Get a free Australian mortgage assessment today.
Overcoming Genuine Savings Hurdles for Expats and Foreign Buyers
While meeting genuine savings requirements can be challenging, there are strategies that Australian expatriates and foreign buyers can employ to overcome these hurdles:
- Demonstrate a Strong Rental History: A good rental history can help compensate for lack of genuine savings in some cases. Maintaining a record of consistent rental payments can demonstrate your ability to manage ongoing financial commitments.
- Use a Guarantor: If you have a family member who owns property in Australia, they may be able to act as a guarantor for your home loan. This can reduce the lender’s risk and potentially allow you to secure a loan without meeting the full genuine savings requirement.
- Explore Alternative Sources of Funds: Some lenders may consider non-traditional sources of genuine savings, such as gift funds, inheritances, or bonuses. Be prepared to provide documentation to prove the source and legitimacy of these funds.
- Build a Strong Credit History: A solid credit history can help offset a lack of genuine savings. Be proactive in maintaining a good credit score by paying bills on time, keeping credit card balances low, and avoiding excessive debt.
By employing these strategies, Australian expatriates and foreign buyers can improve their chances of meeting genuine savings requirements and securing a home loan in Australia.
Expat-Specific Challenges and Solutions for Genuine Savings
As an Australian expatriate, you may face unique challenges when it comes to genuine savings. Here are some common issues and potential solutions:
- Foreign Currency Fluctuations: Savings held in foreign currencies can be subject to exchange rate fluctuations, which may impact your genuine savings balance. To mitigate this risk, consider transferring your savings to an Australian bank account on a regular basis or using a currency hedging strategy.
- Overseas Income Verification: Australian lenders may require proof of overseas income to assess your genuine savings. Ensure that you maintain accurate records of your income, including payslips, tax returns, and bank statements. It may also be helpful to provide a letter from your employer confirming your employment and salary.
- Foreign Tax Implications: As an Australian expatriate, you may be subject to foreign tax laws, which can affect your genuine savings. Consult with a tax specialist to understand your tax obligations and develop a strategy to maximize your savings.
- Australian Credit History: Living overseas may result in a limited or non-existent Australian credit history, which can make it more difficult to secure a home loan. To overcome this challenge, maintain an active Australian bank account and credit card, and make sure to pay any outstanding Australian debts on time.
Tapping into Government Schemes and Incentives
As an Australian expatriate or foreign buyer, you may be eligible for government schemes and incentives that can help you secure a home loan and potentially reduce your genuine savings requirement. Some of these schemes include:
- First Home Loan Deposit Scheme (FHLDS): The FHLDS is a government initiative that assists eligible first home buyers in purchasing a property with a deposit as low as 5%. The scheme is designed to support borrowers who may struggle to save a large deposit and can be beneficial for expatriates returning to Australia.
- First Home Super Saver Scheme (FHSSS): The FHSSS allows first home buyers to save for their home deposit within their superannuation fund. This can be particularly advantageous for Australian expatriates with existing superannuation balances. By using the FHSSS, you may be able to save more quickly for your home deposit while benefiting from tax advantages.
- Foreign Investment Review Board (FIRB) Approval: As a foreign buyer, you will likely require FIRB approval to purchase property in Australia. It’s essential to understand the FIRB process and any associated fees to ensure a smooth home loan application process.
Tips for Building Genuine Savings While Living Abroad
Building genuine savings while living overseas can be challenging, but these tips can help you stay on track:
- Set a Savings Goal: Determine how much you need for a home deposit and set a timeline for achieving your goal.
- Automate Your Savings: Set up automatic transfers from your income to a dedicated savings account. This can help you consistently save and avoid the temptation to spend.
- Track Your Expenses: Use a budgeting app or spreadsheet to monitor your spending and identify areas where you can cut back.
- Invest in High-Interest Savings Accounts: Research high-interest savings accounts or term deposits to maximize your savings growth.
By staying disciplined and employing these strategies, you can effectively build genuine savings as an Australian expatriate or foreign buyer, making it easier to secure a home loan in Australia.
Understanding the Basics of Genuine Savings
Understanding genuine savings is crucial for Australian expatriates and foreign buyers looking to secure a home loan in Australia. By following the tips and guidance provided in this comprehensive guide, you’ll be well on your way to navigating the complexities of genuine savings and achieving your property investment goals.
Get a free Australian mortgage assessment today.
Frequently asked questions
Genuine savings refers to funds saved or accumulated by a borrower over a period, usually at least three months, which act as a deposit towards a home loan.
Genuine savings demonstrates financial discipline and the ability to make regular mortgage repayments, which is crucial for obtaining a home loan in Australia.
Calculate genuine savings by identifying acceptable sources, determining the time frame, and adding up the funds from all acceptable sources.
Yes, some lenders, such as non-bank lenders, may have more lenient genuine savings requirements. Mortgage brokers can help you find these lenders and negotiate better loan terms.