If you’ve asked yourself “Does renting help you get a mortgage?”, this can only mean that you dream of owning a house and want to stop renting. Unfortunately, saving for a house deposit while renting can present significant challenges. With the cost of rent and living expenses together, accumulating enough genuine savings for a full deposit can be tough.
Don’t worry, there is good news for those in this situation! Believe it or not, leveraging your rental history for home loans is possible.
In this article, you’ll learn about the concept of using rental history to enhance your chances of mortgage approval. This piece will also tackle other ways you can improve your odds of securing that home loan you want.
Understanding the Importance of Rental History
If you’re thinking of using rental history to qualify for mortgage loans, let’s begin with some useful information. How can rental history help you in getting your dream home? Here are some things for you to consider.
Definition of a “good” rental history
What exactly is good rental history? It consists of several key factors. These include the following:
- Consistently paying rent on time throughout your tenancy to demonstrate reliability and financial responsibility.
- Maintaining a positive relationship with your landlord or property manager. Being respectful, adhering to lease agreement terms, and promptly addressing any maintenance or repair issues can help you achieve this.
- Avoiding any rental arrears or disputes. This strengthens your rental history and shows your ability to manage financial obligations effectively.
How can rental history support your loan approval?
Lenders consider your ability to make regular mortgage repayments when assessing your loan application. Your rental history can serve as evidence that you consistently meet your rental payment obligations. It also shows that you’re responsible enough to handle your financial commitments.
Responsible payment behaviour can provide lenders with the confidence that you will follow through with your mortgage repayments. Also, good rental history can help increase overall borrowing power, increasing the possibility of securing a larger loan.
Mortgage brokers and finding lenders who accept rental history
Not all lenders use good rental history as part of their loan assessment. This is where mortgage brokers can help. An expert mortgage broker can connect borrowers with lenders who allow this with the help of their comprehensive knowledge of the lending landscape. In short, they know which lenders give out home loans based on rental history and allow it as a supporting factor for home loan approval to give you the best chance at home loan approval.
Checking Your Rental History
Before you ask the question “Does renting help you get a mortgage?”, you first need to check if you do have a good rental history. To check this information, here are some things you need to do:
Request a rental payment schedule from your property manager
One of the easiest ways to obtain your rental history is to request a rental payment schedule from your current or previous property manager. This document outlines the details of your rental payments, including the property address, payment amounts per week or fortnight, and your full name.
Contact the relevant state or territory housing authority
If you cannot get the right information from your property manager for any reason, your state or territory housing authority can be a valuable resource for verifying and obtaining this information. They maintain records of tenants and landlords and can provide details about your tenancy. This can include payment history and any reported disputes.
Private tenant screening services and their fees
Aside from government housing authorities, private tenant screening services can also be used for this task. These service providers collect information from various sources and collate comprehensive reports that include rental payment history, tenancy duration, and any relevant issues or disputes. Be prepared to invest a small amount to access this information since these entities charge a fee for this.
Impact of Rental History on Borrowing Power
As mentioned earlier, your rental history can impact your lending capabilities and borrowing power. Here are some things that can happen when you’ve proven good standing as a tenant:
Positive effect of consistent rental payments on borrowing capacity
Consistent rental payments and a positive rental history can have a significant positive impact on your borrowing power. Lenders consider your financial behaviour and ability to meet repayment obligations when determining your borrowing capacity. This demonstrates your financial reliability and increases your chances of securing a higher loan amount.
Negative effect of late rental payments and arrears
Having outstanding debt and a history of late payments can significantly impact your ability to secure a mortgage when relying on rental history. When a landlord reports missed or late payments, it raises a red flag for lenders, signalling that you may pose a higher risk of defaulting on a loan. This can lead to the rejection of your application.
Note that a strong rental history can also enhance your eligibility for higher loan-to-value ratios (LVR). LVR refers to the percentage of the property’s value that you can borrow as a mortgage.
Traditional lending practices often require a minimum deposit of 20% to avoid lender’s mortgage insurance (LMI). However, with a solid rental history, some lenders may be willing to offer LVRs of up to 95% or 97%, allowing you to secure a mortgage with a smaller deposit.
Using Rent as Genuine Savings
Before we tackle this topic, let’s first understand what genuine savings means. This phrase refers to money that you’ve saved up over time. This can include bank deposits, term deposits, gift money, and many more.
Now, since you’re paying rent and may not have enough money saved up for a deposit on a home, your regular rental payments may have the same effect as genuine savings.
Qualifying rent as genuine savings for mortgage approval
Traditionally, lenders require borrowers to demonstrate a minimum percentage of genuine savings as part of their deposit. However, if your rental history meets the lender’s policy for genuine savings, you can use your rental payments as a substitute.
So, even if you haven’t accumulated a specific amount in savings, you can present your record of rental payments as evidence of your ability to meet financial commitments.
Demonstrating consistent and prompt rental payments
To qualify your rent as genuine savings, it’s crucial to demonstrate steady and on-time rental payments throughout your tenancy. Lenders will typically look for a track record of prompt payments without any rental arrears or disputes.
You can showcase your payment history and strengthen your application with the help of a rental ledger from your real estate agent or property manager.
Including rental ledger in the home loan application
When applying for a home loan, including your rental ledger as part of the documentation is ideal. This document outlines your rental payment history, property details, payment amounts, and duration of the tenancy. This ledger provides concrete proof of your responsible financial behaviour, which can enhance your chances of securing loan approval.
Are there Lenders Accepting Rent as Genuine Savings?
It’s important to note that lenders who accept rent as genuine savings may have specific requirements. Their maximum LVR (loan-to-value ratio) may be subject to the lender’s mortgage insurance (LMI).
LVR is a percentage that equates how much they’re considering in a loan to you against the total value of the home you’re aiming to buy. LMI is a type of insurance that protects the lender in case the borrower defaults on the mortgage.
Usually, when the deposit is less than 20% of the property’s purchase price, lenders require LMI. Ensure that you understand the LVR limits and associated costs to make informed decisions during the home loan application process.
While the acceptance of rental history as genuine savings is growing among lenders, note that only a limited number of financial institutions offer this option. What do you do?
- Research and identify lenders who consider rental history as a valid criterion for home loan approval.
- Consult with a mortgage broker who has access to a network of lenders with this option.
Also, you should be aware that each lender has specific policies and criteria regarding the acceptance of rental history as genuine savings. Some lenders may require a minimum duration of rental history, such as 12 months, while others may accept shorter periods with certain conditions.
They may also have varying requirements for the documentation needed to support your rental history. Being well-informed about these differences will help you tailor your application to the specific lender you’re thinking of approaching.
Required Documentation for Rental History Home Loans
When applying for home loans in Brisbane that accept rental history as proof that you can pay your mortgage, certain documentation is typically required:
A. Rental history letter from the real estate agent
This letter from your real estate agent or property manager provides official confirmation of your rental history. Details include the property address, the duration of your tenancy, and your payment history.
B. Proof of income (payslips or tax returns)
Lenders will require proof of your income to assess your affordability for the mortgage. Recent payslips or tax returns show consistent income and ability to meet repayment obligations.
C. Proof of a 5% deposit plus associated costs/fees
You’ll also need to provide evidence of having a 5% deposit saved, along with additional funds to cover associated costs and fees related to the property purchase. This may include expenses such as stamp duty, legal fees, and inspection costs.
D. 100 points of identification
Identification documents to verify your identity via the 100 points system are commonly used in Australia, where different documents are assigned different point values. These can include your passport, driver’s licence, birth certificate, and other forms of identification.
Will having housemates or a private landlord affect my rental history?
Let’s say you live in a shared house where you only pay some of the rent, or you have a private landlord, will this affect your chances of securing a home loan using rental history?
In a shared living arrangement, you will need your name on the lease and be able to show a good track record of your rental payments – you can usually use your personal bank statement as proof of your share of the rent. A few lenders may consider this style of rental payment; however, the key will be showing the evidence in your name to satisfy that.
If you live in a private rental, you will need a formal tenancy agreement in place and rental history proof of more than six months using your bank statements.
Support from Parents and Other Factors
You can use a few other things to help further solidify your loan application. These include the following:
Exploring financial support from parents, including gifts and loans
Parents can play a crucial role in assisting their adult children with homeownership. They may provide financial support through a gift, which is a non-repayable amount intended to contribute to the deposit.
Alternatively, parents can offer a loan, which can be repaid according to agreed-upon terms. It’s essential to have clear documentation and agreements in place to avoid any misunderstandings or complications.
Utilising guarantor loans for increased borrowing capacity
Guarantor loans involve parents using the equity in their own property as additional security for the borrower’s mortgage. This arrangement can enhance the borrower’s borrowing capacity and potentially remove the need for a large deposit.
It’s important to note that guarantors assume some level of financial risk, so open communication and a thorough understanding of the terms are crucial.
Other factors that can help qualify for a home loan
Aside from rental history and parental support, there are additional factors that can positively impact your home loan eligibility. These include increasing your deposit, improving your credit score, ensuring timely payments of utility bills, mobile phone bills, and debts, and then providing evidence of these timely payments.
Showing responsible financial behaviour and reducing debts can help strengthen your loan application.
Are You Eligible for a Home Loan Due to Your Rental History?
So, can you get a mortgage by leveraging your rental history? Does renting help you get a mortgage? The short answer is YES – but with a few caveats.
Being consistent and responsible in rental payments shows your ability to meet financial commitments and may even increase your borrowing power. Also, to support your application, remember to gather the necessary documentation, including rental history letters, proof of stable income, and valid forms of identification.
Need professional assistance? Work with the Brisbane mortgage brokers at NBHL
By working with the professional mortgage brokers at North Brisbane Home Loans, you can stop asking the question “Does renting help you get a mortgage?” NBHL will help you identify lenders that recognise the value of rental history and present a strong loan application tailored to your circumstances.
Not sure where you can find home loans that take rent into consideration? Consult with our mortgage professionals. They can help you find the right lenders for this and guide you through the process of securing a home loan using your rental history.
Contact us today and let our experienced mortgage specialists help you put together a solid home loan application with the right lender for you.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
