Lots of questions and confusion come up around using your rental history to avoid having to prove genuine savings. Below is an example of a purchase recently completed.
What is genuine savings?
Genuine savings proves to the banks and lenders that you have a good savings pattern and the ability to save a deposit. It shows them that you are likely to be a good borrower, or a lower credit risk.
Banks require you to prove you have 5% of the purchase price as your own cash savings, accumulated over a 3 month period. This is evidenced by way of bank statements.
Can I use my rental history to avoid genuine savings?
If you have been renting through a real estate agent for a minimum of 6 months and can show on-time rent payments, you may not need to prove genuine savings.
It is important to note you still need to have the cash deposit for the purchase. Even if you are renting, the money can come from alternate sources like a gift from family or the sale of an asset, rather than having to be evidenced as your own savings.
Example purchase
Scenario: clients recently purchased a $500k established home, using their rental history and ledger to get around the 5% genuine savings requirement.
The clients had $15,000 saved of their own money, so less than a 5% deposit, and received gift funds from their parents and grandparents as below.
Established NSW first home buyer purchase
- $500,000 purchase price
- $2,500 purchase costs (conveyancing, government costs and title fees; NSW stamp duty waived for first home buyers)
- Total funds required for settlement: $502,500
Funds available
- $461,000 proposed home loan
- $15,000 current cash deposit
- $15,000 gift from parents
- $11,500 gift from grandparents
- Available for settlement: $502,500
LMI of $13,058 can be added to the home loan. So the home loan of $461,000 plus LMI of $13,058 comes to a $474,058 home loan including LMI.
Repayments
A variable rate home loan of $474,058 over a 30 year loan term at 2.69% pa gives a repayment of $886 per fortnight, principal and interest.
Although the clients had less than 5% genuine savings, we were still able to get formal approval with a genuine savings exception, on the basis they provided a 6 month rental statement showing on-time payments.