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Can I include rental income when applying for a home loan?

Posted: Fri May 16, 2014 11:31 am
by stace
Hi brokers, I am planning to buy a house and I would need to apply for a home loan for this. I already have two investment properties which I am currently renting out at an average of $430 per week. I was wondering if I can include these rental incomes when applying for a home loan.

Re: Can I include rental income when applying for a home loa

Posted: Fri May 16, 2014 12:12 pm
by Otto Dargan
Hi and welcome to the forums stace,

The rent you receive from your investment properties may be assessed in different ways by each lender. Most lenders in general only take 80% of the gross rental income while assessing the loan application. This amount along with other income such as the borrower’s salary is then entered in the serviceability calculator to determine the relevant ratio.

The reason why many lenders may only use 80% of your rent income is because they assume that 20% of the rent you receive will be used to pay off expenses such as agent’s fees, council rates, strata levies, repairs and expenses to cover for any vacancies.

However, please remember that some lenders may not assess your rent income in the same way. For example, some of them may only use 75% of the rent income. Similarly, some may not apply tax to the rent while others may do.

Many lenders in particular may differ on the way they assess negative gearing benefits and the assessment rates they use to calculate the impact of the applicants’ current debt commitments.

Cheers,
Otto

Re: Can I include rental income when applying for a home loa

Posted: Fri May 16, 2014 1:41 pm
by stace
Okay, well just out of curiosity, are there any banks willing to accept 100% of the rental income?? :)

Re: Can I include rental income when applying for a home loa

Posted: Fri May 16, 2014 2:44 pm
by Otto Dargan
Hi stace,

Yes, few of the lenders may be willing to use 100% of your rent income while assessing your loan application. In fact, we are working with one of the lenders who are willing to consider this.

In addition, they may also assess your current debts at the actual repayments rate instead of a loaded assessment rate. This can greatly increase the borrowing power of those investors who own positively geared properties.

If you would like to find out what your chances of qualifying for a home loan is then you can fill in our free assessment form or call us on 1300 889 743. You can also check out our website for more information on the different types of loans available.

Cheers,
Otto

Re: Can I include rental income when applying for a home loa

Posted: Fri May 16, 2014 3:54 pm
by stace
Hmm..sounds good. I guess I should call you up immediately if I want to get approved for a home loan with that particular lender. BTW, thanks for telling me about this. Hope to speak to you soon.

Re: Can I include rental income when applying for a home loa

Posted: Wed Jul 16, 2014 11:32 am
by totoro
Hey, my home loan application was declined a few months ago because the bank said I more reliant on rent than my salary. I don’t understand why they would do this because I thought the whole point was to assess whether I can afford the loan or not and with the amount of rent I am earning, this should have been a strong indication towards that. So are there any banks that will approve a loan of someone who has high rental income?

Re: Can I include rental income when applying for a home loa

Posted: Wed Jul 16, 2014 12:22 pm
by Otto Dargan
Hi totoro,

Most lenders are wary about lending to applicants who are earning more income from rent than they are from their salary. This is because lenders feel such types of investors are higher risk borrowers who can be affected by market downturns more severely than normal home owners.

In fact, one of our lenders has the following policy regarding who they consider to be a rent reliant applicant:

Where significant portion of borrower’s income is derived from rent and the proposal is heavily reliant on rent, the application may be considered too rent reliant.

In addition, they have also set the level of gross rental income which should not be exceeded when calculating the serviceability of the applicant:
  • 40% of the gross salary or wage for incomes less than $60,000.
  • 65% for incomes between $60,000 to $100,000.
  • 70% for incomes greater than $100,000.
Some lenders may even decline your application if they classify you as rental reliant or they may only take part of your rent income into account when assessing your loan application.

The good news is that not all lenders consider being reliant on rent as a problem. It is best to get help from a mortgage broker and apply with a lender who thinks that way.

Cheers,
Otto

Re: Can I include rental income when applying for a home loa

Posted: Wed Jul 16, 2014 2:58 pm
by totoro
I didn’t know lenders had such kind of policy on rental income. I want to see if it is possible to find a lender who will be ready to accept my loan application. Let me give you a ring in a couple of days so that we can talk about this.