Rental and Home Loans History
It may sound strange, but you can use your rental as a deposit on your new home. This can be done in one of two ways.
Rent to Buy
This is the first option and quite literally means using the rent you pay as your proof of being a good payer to purchase the home you are going to buy, if you go in this direction, the actual rent may be higher than the current rental rates which would be set for this type of property, yet the difference is actually used as your ability to pay over time.
The steps normally involved with this are the bank can use your rent to see you have a good payment history:
- A rental contract between the two parties showing statements of payments, long-term.
- Alternatively, you can purchase your rental home (if it’s for sale by the landlord), as a rental/purchase agreement. An option to buy the property in the form of a contract.
- As an example, if the rent is $350 per week, and you agree to pay $500 per week, $150 of this will go towards the “option to buy contract.”
Over a couple of years, you could amass quite a bit towards the deposit and then use it to purchase the property. There are some pros and cons associated with this option:
The purchase price can be locked in while you are saving, an example being if the property was locked in for two years at $500,000 it would still be the same value at the end of the two years.
Your savings plan is defined by default, you are free to save more, but this difference cannot be avoided.
If for any reason, you decide not to purchase the property, you will forfeit any money which has been used towards your deposit.
The deposit can only be used for the property that you are renting.
Any maintenance charges will have to be paid by you, whereas in normal cases the landlord would pay.
If the landlord has financial problems, you are unprotected and could lose your deposit.
If the property value does not reach what was agreed to by the initial contract, it could be very difficult to get further financing.
It is wise to think about this option carefully, it can seem ideal, but most of what is set out is in favour of the landlord.
Rent as Proven Savings
When purchasing a property in Australia, the majority of lenders will ask for proof of savings, this should show a gradual increase in a saving account for not less than 3 months. Without being able to prove these savings, it is nearly impossible to get financing unless you can take advantage of the grants available, and the factors required to meet the terms. There are new loans on the market which will allow you to obtain a five percent deposit along with a well proven rental record, this rent then goes as proof of your savings.
With this method, there are a few catches you should be aware of:
In many cases, rent has to be over 6 months and in some cases, 12 months is required. Every single rental payment has to have been made on time, every time. A rental contract for twelve months or longer may have to be shown. Private rentals are accepted under consideration only, rentals through licensed real estate agents are fine. The tenants whose name is on the lease must be the same as the loan applicants.