Buying A House With Your Rental History
Do you have a strong rental history but struggle to save for a downpayment on a house? You still have options.
You might not have noticed, but the big banks have been getting stricter with their lending criteria over the last six months, with a 20 per cent deposit the requirement if you want to avoid Lenders Mortgage Insurance.
However, some lenders may let you borrow with just a 10% deposit and Lenders Mortgage Insurance, but this often comes with the requirement to show that 5% is genuine savings accumulated over at least three months beforehand.
“My girlfriend and I made the decision to purchase our first home in March this year, given our broker showed us we were paying just as much in rent as we could have been on a mortgage of our own. However, the tough thing to achieve was the deposit, especially when we were burning our cash renting. I’m glad we called our mortgage broker, because he showed us that some banks actually allow you to borrow with solid rental history despite little or no genuine savings! Finally, paying the rent on time actually got us somewhere,” says Jeremy, who just bought his first home in Bentley, WA.
So, just like Jeremy and his girlfriend, you could be speaking to the few lenders in Australia who understand that paying rent and saving up for a deposit at the same time is not easy.
Instead of genuine savings in your transaction account, these lenders will substitute that with evidence of your strong rental history. You’ll still need that 10% deposit, but you wont need the ‘genuine savings’, meaning you can get into your home quicker.
In case you are wondering why the banks are okay with this, they argue it is only fair to acknowledge that with the increasing rentals across the country, borrowers’ ability to make regular rental payments is representative of their ability to meet their mortgage repayments in the future.
Genuine Savings is usually demonstrated as a steady increase in your savings over a minimum of three months. A windfall income or a gift is not considered as ‘genuine savings’.
So What do you actually need to show the bank?
To qualify for this policy, you need to show your rental ledger from a licensed real estate agent, confirming that you have been paying your rent in full, without being late, for the past 12 months.
Your property manager could also provide a rental letter confirming timely rental payments made by you for the last 12 months.
But if you’re not renting through an agency, don’t worry! A tenancy agreement supplemented by your bank statements could be used as well. An experienced broker will help you through it all!
If you have been making timely rental payments for a minimum period of three months or have at least 2-4% of the purchase amount in genuine savings, some lenders may accept these alternate means as part of your 5% deposit:
First Home Owner's Grant (check your availability here).
Tax refund (with a Notice Of Assessment confirming the amount).
A gift deposit from parents or close relations, accompanied by a letter certifying the transaction.
A windfall income, such as an inheritance, evidenced by proper documentation.
Sale of a car or any other asset.
Is this the best way to go?
Lender’s Mortgage Insurance really sucks! But it’s a necessary evil if you cant offer the banks a 20% security against the home you want to purchase.
If you find yourself without that 20%, the best option above all is to take your parents out for a steak dinner and kindly ask them to be your Guarantor!
With a parental guarantee, you can borrow up to 105% of the property’s price without any deposit or LMI.
NO LMI!!! No cash down at all! Just your parents’ autograph…
By requesting your parents to guarantee 20% of your home loan, you could access 80% LVR loans, which are by far the cheapest in the market! (learn more about Guarantor Home Loans here).
Strategic Property Group is a full-service Mortgage Broking and Subdivision Consultancy based in Perth, Western Australia. If you'd like to learn more about property development and investing for your future, check out the rest of our site, or head over to our Contact page to get in touch.