Can Rent Act As Savings?
Are you a property owner aspiring to own more property through a mortgage as a financing option? Are you a tenant aspiring to own a home through a mortgage? One of the greatest proofs that you can repay the property amount is the rent, whether you are paying or receiving it. So, depending on the lender and the documentation, you may use it to represent savings in your mortgage application. Some lenders, such as Derwent Finance, will assist you in the process. They serve all of Hobart community, making them your best bet if you want a local financial institution that can answer all your mortgage-related questions.
If you own property — and what to buy more through a mortgage — or you want to buy a home as a first-timer, here are some key factors the lender will check.
The Quality Of Documentation
When applying for mortgages, the documentation quality plays a huge role in the lender’s decision to grant or deny the mortgage. In this case, you must have documents that show the amount you received or paid as rent. For landlords, it may be easy to keep all the payment documents. On the other hand, if you are a tenant, it is advisable to ask for official receipts for all the payments. Whether you are a property owner or a tenant, the papers and documents should be as detailed as possible.
Besides proving you receive money from tenants or pay landlords each month, the lender expects the documentation to be authentic and high quality. The papers and receipts should be visible and recognized by other parties. Also, if you use a bank, you should attach all the documents to increase your chances of getting financial assistance from the lender.
The Consistency Of Rent Payments
If you intend to use rent in the mortgage application, you must prove that it is regular. If you are a property owner, you must verify that the tenants pay on time. On the other hand, you must prove that you have not missed any rent payment if you are a tenant. However, cash payments may not help in some cases, whether you are a landlord or tenant.
Therefore, if you intend to use the rent as a form of savings during the mortgage application process, ensure all your rent payment details show the consistency of early rent payments. Also, you should insist on payment options that have a form of documentation and avoid cash payments, if possible.
How Long You Have Collected The Rent Or Paid For Your Apartment
In addition to documentation and rent predictability, the time factor is key when using rent as savings in a mortgage application. If you have rented the property for two years, for example, you are in a better position compared to another application that has rented in a short time. The main reason why time is a key factor is that it helps the lender see the trends and your ability to pay the mortgage premiums. However, you should talk to the lender if you think you qualify, even if you have been a landlord or tenant for less time.
Instances Rent Cannot Act As Savings In A Mortgage Application
Even though you may use rent as savings in a mortgage application, there are some limitations. Some of the most common restrictions include:
Inconsistency in Documentation
If the lender finds any inconsistency in your documentation, whether you are a property owner or a first-time home buyer, they may not approve the mortgage. For example, some rent payments may be missing in the application. They may term this inconsistency as an inability to make the payments on time. However, you should talk to the lender if you believe you have a strong explanation for the inconsistency in your documentation.
If You Have a Low Credit Score
The lender is more likely to check your credit score before evaluating the rent details. If you have a low credit score, your chances of qualifying for a mortgage are slim, even with excellent documentation. For conventional mortgages, you should have a score not lower than 620. However, other mortgage types may accept scores as low as 580.
Even though using rent as a form of savings depends on the lender, it is slowly becoming a determiner in mortgage applications. First-time homebuyers and landlords can use rent payments as proof of their ability to pay premiums. However, you should use rent payments if you have a good credit score of at least 580. If you have questions regarding qualification, documentation, and other related aspects, talk to your lender for more assistance.