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Can I Use My Rental History To Get A Home Loan?

Young, smiling couple with a moving boxIt’s becoming more expensive than ever to rent a place in Australia and the cost is only set to rise, Anglicare Australia’s latest rental affordability snapshot has found.

In its annual study, Anglicare looked into 65,614 properties in Australia and found that rent has risen a staggering 54% in the past 10 years!

To put that into perspective, for the minimum wage to have kept pace with the current average rent, it would need to be $80 a week more than the current $640.90 average.

Pretty sweet deal if you’re an investor but if you’re over helping your landlord pay their mortgage, you’ve probably wondered whether you’d actually be better off buying your own home instead.

If somehow you receive a huge inheritance from a long lost relative or your parents offer to gift you the money for the deposit, you can move out of the rental rat race much faster than you think.

What you may not know is that even if you come across a sum of money to cover the deposit for a prime piece of real estate, you’ll need to show evidence of regular savings that add up to 5 per cent of the purchase price plus the other costs associated with buying a property such as stamp duty, conveyancing fees and home loan application fees (these vary from lender to lender).

These regular savings are known as genuine savings and it’s a requirement that applies to home loans that are for more than 90-95% of the purchase price.

Basically, when borrowing at that Loan to Value Ratio (LVR), you’ll have to prove your capacity or ability to make home loan repayments.

If you haven’t saved the deposit yourself with regular savings over a 3 month period, most lenders will decline your mortgage application. However, some lenders will let you use a rental reference letter instead of showing genuine savings.

How does it work?

In order to beat the genuine savings requirement, you’ll need to show to the lender that you’ve been renting for a period of 3-12 months with no missed repayments.

This will be in the form of a rental letter, a signed declaration from your real estate agent or property manager that confirms the amount you paid in rent each week over the year and that rent was paid on time, every time. It works the same way as if you were providing the lender with a bank statement to prove regular savings over a 3 month period.

To get reference letter, simply get in touch with your property manager and ask for one!
Make it easy for them by sending them a simple letter template. You can find a template that most lenders will accept on the rental reference letter page.

Hot tip: You’re usually better of providing a rental letter over a ledger purely because the ledger shows exact dates of when rent was paid to your landlord and the lender may use this against you when assessing your application.

If you’ve been late with rent just once, your chances of buying your own place may be over and you’ll add an unnecessary enquiry to your credit file. Banks kind of suck like that because they’re almost always looking for a reason to decline you, especially if you don’t have a deposit!

What if I don’t have a property manager?

If you’re renting through a relative or family friend and not via a real estate agent, there is another letter template that you can use and it can also be found on the rental reference letter page.

With a landlord arrangement though, you may need to provide 6-12 months bank statements clearly indicating where rent has been deducted on a weekly basis.

What if I don’t rent?

Are you still living with mum and dad, a relative or one of your really cool mates, rent-free?

That’s sounds pretty awesome but it can be a pain when you want the privacy to strip down, crank up some music and rub peanut butter on your nipples…if you’re into that sort of thing then there’s never been a better time to get your own place!

The good news is that even without genuine savings and a rental reference letter, you may still qualify for a home loan if:

  • you have a 10% deposit.
  • you’re in a fairly good position with a strong, regular income. You may even be able to borrow up to 95% of the purchase price, although you may have to pay a slightly higher interest rate depending on the lender.
  • you have a guarantor: with your parents’ property as a security, you can borrow up to 105% of the purchase price without genuine savings

A solid rental history is your ticket to a new life so check out the rental reference letter page to make sure your letter isn’t rejected by the bank.

Better yet, call 1300 889 743 or complete our free assessment form to speak with one of our no deposit specialists. Get approved the first time and avoid a damaging decline with a home loan solution that fits your situation.