According to financial experts, many lenders require borrowers to demonstrate “genuine savings” when applying for a mortgage with a 5 per cent deposit – money that must be consistently held in the same account, untouched, for at least three months prior to application.
The issue arises when borrowers make withdrawals from these savings accounts, even temporarily, which can reset the three-month clock entirely and potentially disqualify an otherwise eligible borrower.
Money.com.au’s Mortgage Expert, Debbie Hays, said many first-time buyers are unaware of this strict requirement.
“They might have had $20,000 or $40,000 in savings and thought they were all set, but then they lend $5,000 to a family member,” Ms Hays said.
“As soon as that money leaves the account, the genuine savings clock stops. Even if it’s paid back a day later, the balance dipped below the required minimum, say, 5 per cent of the purchase price, and that resets the three-month track record.
“That’s where a lot of people get caught out.”
The genuine savings rule typically applies to borrowers who are borrowing more than 80-85 per cent of a property’s value and therefore are required to pay Lenders Mortgage Insurance (LMI).
In these cases, most lenders require that at least 5 per cent of the purchase price has been gradually saved and held over a period of at least three months without any withdrawals that cause the balance to fall below the 5 per cent threshold.
Ms Hays said that many buyers mistakenly believe that simply having the funds at the time of application is sufficient.
“We’ve seen this scenario play out multiple times, particularly with first home buyers,” Ms Hays.
“They think they’re in the clear because they’ve saved the required deposit, but then use some of it to help a family member or cover an unexpected bill, not realising it can jeopardise their pre-approval, even if the money is put back.”
Financial experts note that lenders have strict criteria for what qualifies as genuine savings.
Gifts or lump sums received recently, short-term savings deposited into accounts in the past few weeks, borrowed funds such as personal loans used to create a deposit balance, and money that has been moved around between bank accounts typically don’t qualify.
When borrowers run into issues with the genuine savings requirement, mortgage brokers sometimes need to find creative solutions.
“In those cases, we’ve had to scramble to find alternative evidence of genuine savings, for example, using a separate bills account that’s had a steady balance over the same period. In some cases, that’s the only way we’ve been able to get the loan over the line,” Ms Hays said.
For prospective home buyers approaching the application stage, experts recommend treating savings accounts as untouchable.
“If you’re close to applying for a home loan, treat your savings account like it’s frozen. Avoid moving funds around or making big purchases, even if you plan to replace the money the following week,” Ms Hays said.
