March 29, 2017 by Rachel Kelly
You’ve been renting for more than 12 months, and try as you might saving that 5% deposit for your first home, and paying rent is difficult. But did you know that some lenders can use your rental history to substitute for 5% genuine savings towards a purchase? So long as you can obtain the 5% deposit from other means, such as a gift or inheritance or first home saving grant, even other borrowing ,your savings problem may be over.
How does it work? There are a few lenders who will accept your past rental payments as an acceptable form of genuine savings (GS). The key points the lender will be looking for are 1) at least 12 months continuous rent history in same property and 2) that the property lease is managed by a licensed property manager/ agent.
Do I still need my 5% deposit? Yes you do need to find at least 5% deposit to contribute to the loan for the property purchase as well as stamp duty and other purchase costs. In fact this is the key part, you still need to have the 5% deposit to meet the genuine savings rule as imposed by the lenders plus the stamp duty cost.
However whereas ‘genuine savings’ needs to be in your account for at least 3 months, using this strategy your deposit can come from any source such as a gift, savings held somewhere else, business account, sale of car of other personal asset or even boosted by having a personal loan. Do you want to know more or have questions to ask call us on 02 9674 8014
What is the maximum Loan to Value Ratio (LVR) a lender to will go to using rental as GS? Depending on the lender some may go to 95% others as high as 97% after including the cost of Lenders Mortgage Insurance (LMI). So if you’re a first home buyer and will be getting the $15k South Australian grant (that applies to a new home purchase) , you can use this and maybe a gift of money, or extra borrowed money via a personal loan to make the deal acceptable and within the LVR range for the lender.
Do the rental payments need to match the minimum deposit? Generally no, so irrespective of your weekly rent, your 12 months rental history will (in most cases) satisfy the lenders GS requirements. The total rent does not be to equal the 5% of the loan amount being applied for.
Do all banks accept rent as GS? No - only a handful. Knowing which lenders do and the difference in each of their policies is important to ensure your case is lodged correctly. Call us today in Kings Langley and surrounding suburbs on 02 9674 8014 for more guidance on this strategy or fill out the form on this page to request a call back.
