The banks are making it easier for first home buyers to qualify for a mortgage of up to 95% of the property value.

Despite this, younger home buyers still face many hurdles when trying to get approval. This is generally because they don’t have the savings or financial stability that older borrowers have, and as a result, the banks doubt their ability to repay their mortgage.

Although, the fact that they have little savings, is no indication of their lack of financial commitment. In most cases they haven’t been able to save because they have been paying rent.

Luckily, there are some lenders that will accept a rental payment history in lieu of savings.

What is the qualifying criteria?

• You must have a rental history of at least three months (previously 12 months).
• Your rental repayments should be at least 50% of the proposed home loan repayments.
• You must be paying your rent and your bills on time.
• You must be renting via a licensed real estate agent.
• You still need 5% as a deposit, it just doesn’t need to be saved over a three month period. It can come from a gift, inheritance, cash, shares, bonus from work, term deposit or equity in another property.

The lease should be in your name alone or both you and your partner. You may still qualify if you are renting with other people, as long as you can prove a track record of prompt rent repayment via your bank account statements and your name is listed on the tenancy agreement.

If you meet the above criteria then we may be able to get your loan approved using rent instead of genuine savings!

Exclusions

In some cases your 5% deposit will still need to be held in your account for at least three months even though you have a three month rental history.

If your deposit comes from the sale of an asset such as a car then you will need to hold the funds for three months to qualify with this lender. Note that some other lenders can still consider this deposit source if you have been renting for longer than three months.

Your first home owners grant will not be considered as part of your 5% deposit by this lender. You cannot borrow a deposit from someone else or obtain a personal loan to use as a deposit.

Your loan will have to meet more stringent lending criteria as Lenders Mortgage Insurance (LMI) approval may be required. This means that your credit history will need to be clear of defaults, your employment must be stable and you must not have significant amounts of unsecured debt such as credit cards and personal loans.

Do you qualify?

Genuine savings is one of the most complicated areas of lending policy with many hidden catches and grey areas. Please use our genuine savings calculator to find out how the banks will assess your deposit and if you will qualify for a home loan.

Please read our page for more information about mortgages that do not require any proof of genuine savings.

If you need our help to get your loan approved then please call us on 1300 889 743 or enquire online and one of our mortgage brokers can determine which lenders you will qualify with.

Westpac have today announced that First Home Buyers are in fact lower risk borrowers than many other types of borrowers such as investors, second home buyers or empty nesters. This is somewhat counter-intuitive, surely people who have not borrowed before and have a lower asset position would be a higher risk?

In this case the statistics don’t lie. We regularly hear from the other banks such as CBA and St George that they find a lower rate of arrears in their first home buyer loan book. The reasons for this are simple:

• First home buyers are quick to get another job if they lose theirs.
• Most first home buyers cannot get approval if they do not have genuine savings, whereas second home buyers and investors often have this requirement waived as they have equity.
• Their loan sizes tend to be smaller and their properties tend to be more affordable, so in the event of financial hardship they have more options available to help them get back on track.

Below is the article from Australian Broker News.

“First home buyers, though typically more leveraged than other market segments, show the best arrears performance, Westpac has indicated.

In its third quarter results announcement, Westpac CEO Gail Kelly said that the bank’s first home owner portfolio saw its best performance and lowest level of delinquencies. The bank’s general manager of mortgage broker distribution Huw Bough told Australian BrokerNews this could be due to first home buyers becoming savvier about the terms and details of home loans.

“We know that first home buyers have more access to financial education, seminars, internet online tools, and social media specifically targeted at them. This could mean they are most likely to understand the details of their home loan under the current economic environment where there is a focus to pay down debt and save more,” Bough commented.

In announcing its results, the bank indicated it had seen subdued mortgage growth, growing its portfolio just above system. While demand for credit was slow, Bough commented that brokers continue to introduce more than 40% of the bank’s mortgage business. He said the bank would drive the channel’s growth through building relationships between brokers and local branch staff.

“We are doing this by introducing brokers to our bank managers and their teams locally to build strengthened partnerships that will benefit the customer,” he said.”

- Source Australian Broker News 18/08/2011