Loan application when property has rental arrears

I am in the process of applying for a loan for a new property I purchased. One of my existing properties has rental arrears for 4 weeks now. The last month's rental statement looks pretty bad. Is this going to have a big impact on my loan application?

 

Its lender dependent - smaller, rigid lenders may have an issue with it. Larger lenders may dismiss it.

If your most recent tax return shows the rental income earned from the property you might be able to use that instead of the recent rental statement.

Cheers

Jamie

 

Do you have a current lease? A lot of lenders will accept this.

 

I don't think it will matter
No bank has looked through my aged debtors trial balance
I never have had 100pc of my rents up to date (except for day one lol)
But they do look at the bank statements to verify receipts

 

The fixed term lease expired in Jan 2017. It automatically turned into a periodic lease. It may cause unnecessary queries from the lender if we submit that lease. In the end, I submitted April and May rental statements only.

 

Thanks for taking your time to provide valuable advice.

 

Haven't ever heard of the type of lease taken into consideration for residential. Income is discounted for risk anyway and fixed lease doesn't do much to reduce that risk (on a 30 year mortgage) if it is only 12 months anyway.

 

Plenty will also take an appraisal - thats a decent workaround.

Smaller lenders will likely ask questions, can cause issues.

Rental income can usually be evidenced via:

• Statement - simple, easy - but will show the arrears in this case. Not helpful for you.
• Current Lease agreement - will do the trick, but these are often expired. Periodic ones passed lease expiry don't work.
• Banking credits for 3 months - usually best to have rental credits separated out, this can be a pain to demonstrate to assessors if theres variability - so wouldn't recommend this.
• Rental appraisal - its probably the weakest form of verification, but plenty accept this. Not many do not as well. This may be handy for your case, but will depend on the lender.

 

Thanks, Redom. Did you get any question from the big lenders when you submit rental appraisal letters of vacant properties or properties with rental arrears? In my case i am using one of the big 4

 

Some lenders won't accept a rental appraisal for a property you currently own.

I've also had instances where a current lease agreement is not sufficient as they can easily be created by getting a friend to sign it. They also want to see bank credits or the receipt from the bond authority proving the bond was lodged.

When rentals are in areas most lenders are probably going to be okay with a letter from the real estate agent, but don't be surprised if a little more is required.

 

Are you insured against rental loss? I'd also include this in the notes to cover it off if you're using the rental statements.

 

Not that difficult - haven't had a problem with this before except when it's self managed.

Options

• rental appraisal (if the lender accepts it)
• lease agreement - via property manager NOT a self managed agreement and must be active
• latest tax return
• Letter from property manager stating current rental amount and active lease

Not all lenders accept these - so it's more about having a broker who knows how to balance the lender requirements. Half our job is making the pieces fit, otherwise deals would fall over every day.

 

The insurance I have covers rental arrears. I guess This could help make the lender more comfortable.