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Recently, banks have been getting stricter with their lending criteria, with a 20 per cent deposit being the golden standard. However, some lenders may let you borrow with just a 10% deposit and Loan Mortgage Insurance, but there is also a requirement of 5% genuine savings over a span of minimum three months that borrowers have a tough time negotiating.

 
renting
 

“My wife and I decided to purchase our first home earlier this year, considering we were paying a hefty rental that could be used to purchase our own home instead of funding our landlord’s mortgage repayments. But paying rent and saving money for a home loan deposit is not easy. Luckily, we got in touch with a mortgage broker who informed us that it is possible to borrow with solid rental history despite little or no genuine savings! Finally, being a good tenant worked to our advantage,” says Alan, a first home buyer who recently purchased an apartment in Melbourne.

Yes, just like Alan, you will be glad to know that there a few lenders in Australia who understand that paying rent and saving up for a deposit, simultaneously, is not easy. Instead of genuine savings in your account, such lenders will lend to you on the basis of your strong rental history.

In case you are wondering why, it is only fair to say that with the increasing rentals across the country, your ability to make regular rental payments is representative of your ability to meet your mortgage repayments in the future to a great extent.

The term, genuine savings, refers to a steady increase in your savings over a minimum period of three months. A windfall income or a gift is not considered as ‘genuine savings’.


Strong rental history in place of genuine savings

Many first home buyers find themselves locked out of the property market because of the lack of genuine savings. However, with a strong rental history, you can beat this requirement to purchase your dream home, now. To qualify, you need to show your rental ledger from a licensed real estate agent, confirming that you have been paying your rent in full, without any delay, for the past 12 months.

You could also ask your property manager to provide a rental letter confirming timely rental payments made by you for the last 12 months.

In case you are renting with a family member or a friend, and do not have a licensed real estate agent, a tenancy agreement supplemented by your bank statements could be used as well. Contact a mortgage broker to know more.

If you have been making timely rental payments for a minimum period of three months or have at least 2-4% of the purchase amount in genuine savings, some lenders may accept these alternate means as part of your 5% deposit:

  • First Home Owner’s Grant (check your eligibility here)
  • Tax Refund (with a Notice of Assessment confirming the amount)
  • A gift deposit from parents or close relations, accompanied by a letter certifying the transaction
  • A windfall income, such as an inheritance, evidenced by proper documentation
  • Sale of a car or any other asset


What if I don’t rent?

Now that we know a solid rental history could help you finance your first home, what about first home buyers who neither rent nor own a property?

Many youngsters continue to stay with their parents, instead of renting, but struggle to save up for a deposit due to the steadily rising property prices.

If you find yourself without any genuine savings and no rental history, let us tell you that a few lenders still consider you worthy of a home loan if you have proof of steady income and a parental guarantee to back you. With a parental guarantee, you can borrow up to 105% of the property’s price without any deposit or LMI. However, until and unless you are confident about your financial future, a limited guarantee is a safer way to go.

By requesting your parents to guarantee 20% of your home loan, you could access 80% LVR loans, which are the cheapest in the market (learn more about Guarantor Home Loans here).


Get expert help

Glenn, a mortgage broker at HashChing, explains that while you can borrow without genuine savings, and no rental ledger in some cases, “the best thing to do is to contact an experienced broker and have them take a snapshot or look at your whole unique financial situation and then you can be provided with relevant lenders who can assist and help you reach you goal.”

Just like Glenn, we have a number of mortgage brokers at HashChing who have helped several first home buyers take out home loans without any deposit or no genuine savings. To confirm your eligibility for a home loan and understand your options better, contact a mortgage broker now or fill the online enquiry form below so that we can get back to you.

 

By Vidhu Bajaj
HashChing Content Writer

 

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