Hi finance gurus, I am contemplating buying a PPOR in Sydney at the moment. My family and I currently rent paying $600 per week and we have a decent deposit saved up. Does the bank still include the rent when determining servicing even though I won’t be paying rent once I buy? Will the $600 per week be included in any of their calculations or does this not get factored in when buying a PPOR? If I decided to rent it out initially for a year or two, does the bank include the potential rent from the property? If so, this would help with servicing so would that mean I would be able to afford a higher valued property? Thanks in advance.
If you are buying as a PPOR, they won't consider the rent you're paying in servicing. If you're not, and it's going to be an IP first, they will take the rental income @80%, and also count the rent you pay as an ongoing liability.
Nope. Yep. Whether it improves your servicing comes down to how much rent the property obtains - keeping in mind that the banks will only take into account a portion of the gross rent for servicing (75-80% usually). Cheers Jamie
Lender's look at the end picture - what is the situation going to look at when the loan settles. If you're no longer going to be renting, the current rent being paid will be disregarded. If the property is going to be rented out, they will factor in any rental potential but also factor in you continuing to pay rent.
Thanks for the replies that makes sense. If we were to move in with family for a short period (say 6-12 months) and hence not pay any rent, do they still factor in something? for example, could we move in with family while organising the loan/purchasing the property, rent it out for 12 months to help serviceability while then renting once the property settles?
In theory you could do that. Whether it's wise or not is a different issue - if servicing is that tight you need to ask if you can actually afford the loan?
Exactly Jessica - as a borrower you can effectively play all kinds of hijinx, but in the end there's a real question of affordability. There's not point manipulating the system to try gain additional borrowing capacity, if it puts you in significant financial stress (especially if rates rise significantly). Invest that time and energy into improving your financial position and you'll receive a much better result.
Thanks guys. The only reason I was thinking that is because my wife is only working part time at the moment as we have two young kids. In 12 or so months time she will go back to full time work so we will have the extra income to support it
most lenders will still input an allowance for rent paid, even if you are living rent free with family. Taking 80% of potential rental income, and 100% of rent paid and higher servicing interest rates for investors usually means its close to a zero sum game in any case. You also need to factor in stamp duty savings and other potential costs purchasing as a 'short term' IP.
To the OP....if your future repayments are going to be around the same as you are currently paying in rent then it cant hurt to show a lender your good history of paying rent on time, although it is not required. This is especially true if the LVR is higher than 80%.
