When applying for a mortgage, lenders scrutinize various aspects of your financial profile to assess your ability to repay the loan. One crucial factor they consider is genuine savings. Unlike one-time gifts or windfalls, genuine savings are funds that you have accumulated over time. These savings demonstrate financial discipline and stability, which can significantly influence the outcome of your mortgage application. Understanding the role of genuine savings in the mortgage approval process can help you prepare and improve your chances of securing a loan.
What Are Genuine Savings?
Genuine savings refer to money that you have saved consistently over time. They can include:
- Regular deposits from your salary: Consistent savings from your income over at least three months.
- Term deposits: Funds that have been held in a term deposit for a minimum period.
- Equity in an existing property: If you’ve been making extra mortgage payments, the equity you’ve built can sometimes be considered genuine savings.
- Other long-term investments: Certain shares or managed funds held over a specified period.
Lenders prefer genuine savings because they indicate a borrower’s ability to manage their finances responsibly. For first-time homebuyers, proving genuine savings can be particularly important. A Sydney mortgage broker can guide you through the specific requirements of different lenders, helping you present your savings in the best possible light.
Why Lenders Value Genuine Savings
- Proof of Financial Discipline
Genuine savings are a clear indicator of financial discipline. They show that a borrower can save money consistently, manage their budget, and prioritize financial goals. This is reassuring to lenders, as it suggests that the borrower is likely to make their mortgage payments on time. - Reduced Risk for Lenders
Lenders perceive borrowers with genuine savings as less risky. This is because genuine savings demonstrate a history of financial stability and the ability to accumulate funds. In case of financial difficulties, a borrower with genuine savings is more likely to have the resources to continue making mortgage payments, reducing the lender’s risk. - Meeting Loan-to-Value Ratio (LVR) Requirements
Genuine savings often contribute to the deposit required for a home loan, affecting the Loan-to-Value Ratio (LVR). The LVR is a measure of the loan amount compared to the property’s value. A lower LVR reduces the lender’s risk and can lead to more favorable loan terms, such as a lower interest rate or the possibility of avoiding Lenders Mortgage Insurance (LMI).
How to Build Genuine Savings
- Start Early and Be Consistent
The key to building genuine savings is consistency. Start saving early and make regular contributions to your savings account. Even small amounts can add up over time, demonstrating your ability to manage money. - Automate Your Savings
Set up automatic transfers from your checking account to your savings account. This ensures that a portion of your income is saved each month without requiring manual intervention, making it easier to stay on track. - Cut Unnecessary Expenses
Review your monthly expenses and identify areas where you can cut back. Redirecting these funds into your savings account can help you build genuine savings more quickly. - Avoid Touching Your Savings
To maintain the integrity of your genuine savings, avoid withdrawing money from your savings account unless absolutely necessary. Frequent withdrawals can signal to lenders that you’re not fully committed to saving.
The Role of a Sydney Mortgage Broker
A Sydney mortgage broker can be invaluable in helping you understand the role of genuine savings in your mortgage application. They can:
- Assess Your Financial Situation: A broker can evaluate your financial profile and advise you on how to strengthen your genuine savings.
- Identify Suitable Lenders: Different lenders have varying criteria for genuine savings. A broker can match you with lenders that align with your financial situation.
- Improve Your Application: Brokers can provide tips on enhancing your application, such as the optimal timing for demonstrating genuine savings and ways to present your financial history.
Conclusion
Genuine savings play a critical role in the mortgage approval process, demonstrating financial discipline and stability to lenders. By consistently saving, managing your expenses, and working with a Sydney mortgage broker, you can improve your chances of securing a favorable mortgage. Genuine savings not only help you meet the necessary deposit requirements but also signal to lenders that you are a responsible and low-risk borrower. As you prepare for your mortgage application, focus on building and maintaining genuine savings to strengthen your financial profile and achieve your homeownership goals.