Many investors use rental income to boost their borrowing power but can you get a home loan using child’s rent?
More than half of young Australians aged 18 to 24 are still living at home and if you’re a parent in this situation, you may be charging your child rent to cover basic living costs and to help with the bills.
We know how you can get approved for a home loan using child’s rent to increase your borrowing power and put yourself in a position to buy the property you want.
The benefits of a home loan using child’s rent
There a number of lenders that will accept between 80-100% of gross rental income when assessing your ability to afford a mortgage (known as your serviceability).
However, we know of an exception to policy that can allow you to use your child’s board as part of your income so you can borrow at a higher Loan to Value Ratio (LVR) whether you have plans to buy an owner-occupied residential property or an investment.
How much board income will the bank accept?
One of our lenders will accept up to a maximum of 100% boarding income per room in your house.
So if one of your children is living at home and has been paying $150 dollars a week in rent over the past year, the lender can accept up to $5,200 of extra income when assessing your serviceability.
With three children living at home and paying rent over the same time period, they’ll accept up to $15,600 and add this to your income.
If your net yearly income is $70,000, the lender will assess your application as if your assessable income is $85,600.
What does this mean for your borrowing power?
Let’s say your assessable income is now $85,600 and your spouse’s net income is $60,000.
If you currently have $300,000 owing on your mortgage on a 4.65% variable rate over 30 years and no existing debt, you could potentially borrow up to $542,452 for a home loan.
Without taking the boarding income into account, you could potentially only borrow up to around $421,245, a difference of around $121,207!
Bear in mind, this doesn’t take into account whether you’re using the new mortgage to pay out your existing mortgage.
As you can see though, a home loan using child’s rent can mean a huge difference for your borrowing power.
Use the ‘How Much Can I Borrow Calculator?’ to get an idea of how much more you could borrow with a home loan using child’s rent.
Alternatively, call us on 1300 889 743 or complete our free assessment form we can let you know if you qualify for this amazing exception to standard mortgage policy!
How do I prove the boarding income?
Unlike a standard rental arrangement with an investment property, there is no real estate agent managing the landlord/tenant relationship nor is there a formal tenancy arrangement in place.
Most banks simply won’t accept a boarding arrangement you have in place with your child because they see it as a high risk.
However, one of our specialist lenders will accept your child’s rent if you can provide:
- A statutory declaration (stat dec) from an authorised witness confirming that your child pays a fixed amount of rent to you on a regular basis.
- Bank statements showing clearly that rental income is being transferred from your child into your bank account.
Rent you receive from your child can be accepted from day one!
What if my child pays board in cash?
It can be really difficult to prove this if you are not receiving board directly from your child via a bank transfer.
However, the lender may accept the stat dec on its own if you’re in an otherwise strong financial position or instead may partly accept this rent income.
What if I house international students?
If you house international students through the Australian Homestay Network organisation, you’ll receive around 85% of the weekly fee charged to the student in return for providing them with a place to stay and food.
This usually works out to be $220 to $300 a week but can you use it as rental income for a home loan?
Unfortunately, the home loan using child’s rent is an exception to standard rental income policy and only applies to immediate family members.
What if my flatmate pays rent?
If you sublease one of your rooms to a friend, again, there wouldn’t be tenancy or lease agreement in place so it can be difficult to get approved for a mortgage.
However, you can help your chances of approval depending on how much you rely on that income and how you can prove that the rent is regular and ongoing.
Check out the rental income home loan page for more information.
Should I get financial advice?
Even though it’s your child, it’s still worth getting some financial advice if you’re relying on your child’s rent to make your mortgage repayments and cover living costs.
Although they may be planning to stay at home for a while if they’re studying, for instance, they’re over 18 years old and have the right to leave home at any time.
You should also consider the tax implications of renting out a room to your child, in particular the fact that you can’t claim tax deductions like standard rental income.
You find out more on the Australian Taxation Office website.
Speak to us today
We’re experts in rental income mortgages and know which lenders will approve your home loan using child’s rent application.
Call us on 1300 889 743 or complete our online assessment form today.