Rental History as Genuine Savings
Rental repayment history can be used as a substitute to genuine savings. Genuine savings was a pre-requisite to be able to raise the mortgage loan when purchasing a home. Historically most lenders have asked a respective borrower to be able to demonstrate a minimum of 5% genuine savings when looking at purchasing a property. The 5% genuine savings is an important first step when approaching a respective lender in order to be able to get your finance approved.
How is rental repayment history used as a substitute to genuine savings?
Historical rental payments made by a potential applicant would be an acceptable form of genuine savings where the applicant is currently renting. In this case there are a couple of lenders who will look at approving a loan application if the borrower was unable to provide 3 or 6 savings history. The key points the lender/s will be looking for are:
1. A minimum of 12 months satisfactory continuous rental history in the same property, and
2. That the property leased by the borrower is managed through a licensed property manager/ real estate agent.
Do I still need a deposit if I can prove rental history as genuine savings
Yes, if rental history meets the policy for genuine savings, then you will need to be able find at least 5% deposit to contribute to the loan to be able to purchase a property and secure the loan. The deposit in this instance can come from any source, and does not need to be saved in your bank account over a 3 months period as with the usually requirement for genuine savings. These include:
2. Another loan e.g. personal loan
3. Cash savings held at home or elsewhere
4. Business account
5. Sale of car or other personal asset like a boat or jewelry
What is the maximum LVR a lender will lend using rental history as genuine savings?
The maximum LVR that a lender will lend using rental history as genuine savings is 95%LVR + the lenders mortgage insurance. This will then equate to a total of approximately 98%LVR. Hence if you are a first home buyer, you can also use the first home buyers grant to help complete the purchase, and source the rest of the money by way of gift from a family member or personal loan!
Does the rental payment need to be a minimum amount for deposit?
12 months of rental history, irrespective of the weekly amount paid will satisfy the requirements for genuine savings. The total rental payment does not need to equate to 5% of the loan amount being sought. Therefore, if you were buying a property for $400,000 you would need $20,000 in genuine savings i.e. 5%, but if you were paying $300/wk in rent, this would give you $15,600 in annual rental payments. In this situation you would still be able to get approved despite the fact that your annual rent is lower than the 5% required as genuine savings deposit.
What is the maximum loan amount permissible using rental history as genuine savings?
The maximum loan amount at 95%LVR using rental history as genuine savings is $1,900,000. This loan amount will be secured over a $2,000,000 property and must be principle and interest. Best of all, this maximum loan amount is eligible for special discounts because of the size of the loan of up to 1.2% for the life of the loan.
Are there additional costs when using rental history as genuine savings?
There are NO additional costs in setting up a loan using rental history as a form of genuine savings. Hence, when applying for this type of loan it does not cost any extra than a normal type of loan. Further the cost of the Lenders Mortgage Insurance (LMI) is the same cost as a normal type of loan.
Do all lenders accept rental history as a form of genuine savings?
Only a very small number of financial institutions offer rental history as a form of genuine savings. Hence, the majority of lenders do not accept this policy. Knowing which lenders do this and the difference in policy is very important as the policies do differ for particular applicants/borrowers.
What documentation is required to be eligible using rental history as genuine savings?
The documentation required to be eligible using rental history as genuine savings is very similar to a normal loan. These include evidence of:
1. Rental history letter from real estate agent
2. Income statements like payslips or tax returns
3. Confirmation that borrower has a 5% costs/funds to complete the purchase. This can be in the form of a stat dec confirming they are to receive a gift. This can include confirmation bulk deposit held in applicants bank account
4. 100 points of I.D.