Owning your own home in the current market with soaring property prices comes with its challenges, especially for a renter. But with interest rates at the lowest they’ve ever been in Australia, now is a good time to explain to your tenant how they can qualify financially as a buyer and what lenders are looking for.
Rental history and payments are considered as good savings history by some lenders. This can qualify for 5% genuine savings when applying for a home loan but tenants will still be required to obtain a deposit from other means such as a gift, inheritance, the first home owners grant or other savings. It’s important to note that setting up a loan in this way does not incur additional costs.
When reviewing a renter’s application, lenders are also looking for:
At least 6 – 12 months of continuous rental history in the same property (without default).
The property lease is managed by a licensed property manager/ agent. (Private rentals are only accepted on a case-by-case basis.)
Tenants on the lease must be the same as those on the loan application.
The maximum LVR that a lender will approve using rental history as genuine savings is 95% with lenders mortgage insurance being additional. Again, not all lenders will accept this which is why it’s important to refer your client to a mortgage broker.
A broker has access to multiple lenders so they will be able to save your tenant time and can determine which lenders are more likely to process an application from a tenant who wants to use their rental history as genuine savings. They can help discuss what is financially viable when it comes to buying a property as either an owner occupier or a renter with an investment property.
It’s hard to identify when a tenant may become a buyer so education is key. Finding out their future plans by asking ’how long do you think you’ll rent?’ or ‘have you thought about buying instead?’may uncover a prospective buyer.
Reference: Loan Market, October 2016