Rent Vs Buy
Time to answer the age-old question – Rent Vs Buy. It is amazing that many people still rent despite the fact that in modern Australia, almost anyone that has a stable job has the opportunity to become a first home buyer. Often times, people assume themselves to be in a far worse financial circumstance than what they are actually in.
The thought of taking out a home loan and moving into your own property gives you a tremendous sense of accomplishment. That being said, getting there in the first place can be a most daunting task if you are trying to save up for a deposit while renting at the same time.
The helpful news is that many prospective lenders actually accept rental payments as genuine savings. That is then seen as a reflection of your ability to make on time repayments.
While a record of prompt rental repayments would definitely give your prospective mortgage a reason to place their trust in you, there still exists a need for an upfront deposit to go towards your home loan.
This affords borrowers the ability to utilise funds from a gift, a financial windfall or an asset sale towards the deposit for their home loan. Under ordinary circumstances a prospective lender would be reluctant to allow this to be the principal basis for a mortgage due to it not being genuinely saved.
All borrowers need to do under this sort of a policy is to demonstrate the existence of a consistent savings history. Even as little as a year long history can be seen as evidence of consistency when it comes to making on time repayments.
At its outset however, this policy did lead to some confusing sentiment among prospective borrowers as they innocently assumed that as long as they had a consistent track record of making regular repayments, they no longer needed to have a deposit to go towards their home loan.
In the process, many seeking absolute finance, that is wanting to borrow 100% of the amount, were declined. 5% is the absolute minimum deposit one needs to show as genuine savings.
Given the rapid growth in the popularity of the property market, more and more people are beginning to become first home buyers. Renters are now looking to take that leap forward and become first home owners.
It makes no sense to rent long term as you are pumping funds into somebody else’s account and effectively either giving them money as profit or helping them pay off their mortgage. This is why the ideal renter would be one who gets into the routine of saving aside money for one’s own home loan while renting.
Combining the two is the ideal case scenario because you use the deposit to fulfil the prospective lender’s requirement and give them a reason to lend to you, and the history of on time rent repayments can embellish the prospective lender’s trust in you.
While the State Government’s First Home Owners Grant and the KeyStart package are competitive initiatives that give otherwise struggling prospective borrowers a foot in the door, the wise thing to do is to ensure that one plans ahead and starts saving up bit by bit for a deposit while avoiding taking out other smaller loans.
Call 1300 307 155 and start saving today!
Latest posts by Daniel Jovevski (see all)
- Variable vs Fixed Home Loans – Which one is right for me? - December 5, 2014
- Mortgage Tips for Borrowers - November 20, 2014
- 5 Hot Tips for Getting the Most from Your Home Open - October 8, 2014