Using the rent you pay to buy your house

April 20, 2017
Lisa Elliott

Are you tired of renting?  Do you dream of moving into your own home but you just struggle to save the 5% deposit because you're paying rent?

The good news is some lenders will let you use 12 months worth of rental payments as an alternative to genuine savings. 

What is genuine savings? Simply put, genuine savings are funds genuinely saved or accumulated over a period of time.  Most lenders want to see that you have been saving for a consecutive 3 month period, as it shows them that you can manage your money. 

What will you need to provide?  Lenders that may accept rental payments as an acceptable substitute for genuine savings want to see

  1. at least 12 months of continuous rent history in the same property; and
  2. the lease on the rental property needs to be managed by a licensed property manager/agent. 

Do you still need 5% deposit?   Yes - you still need to provide the 5% deposit to contribute towards the loan, plus any additional costs such as stamp duty, legal fees, inspection fees, etc.   However this approach gives you a bit more flexibility as the funds for the deposit could be from an inheritance, a non-repayable gift, the sale of a vehicle or other asset, and you don't need to have held onto the funds for a minimum period of time.    Lenders require that you have the 5% deposit, plus stamp duty costs,to meet their genuine savings rule. 

If I use the rent paid as my genuine savings, is my ability to borrow any less? Substituting rent as genuine savings is accepted by some lenders who may loan up to 90% of the purchase price of the property.  If you include Lenders Mortgage Insurance, which is an extra cost, some lenders may loan higher than 90%.  

Does the amount of rent that I pay need to equal the amount of the proposed mortgage repayment?  Not necessarily.  Lenders also look at your income and employment status when they are assessing your ability to be able to afford to repay the loan.   

Will any lender use my rental history instead of genuine savings?  All lenders have their own criteria for lending money and not all will accept rental history in lieu of genuine savings, but its my job to help you to choose the most suitable for your situation.

I understand applying for a loan can be complex so give me a call on 0413 848 063 to help you through the process.

 

Posted in: Home loans

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