
Get exclusive money-saving offers and guides
Straight to your inbox
Updated
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
When you apply for a home loan, the lender will request a wide range of information from you. A lender needs to be sure that you’ll be able to meet your repayments and comfortably service the loan, so you’ll need to provide information about your income, your assets and your liabilities.
Lenders also want to see evidence of strong financial management on your part, such as your ability to make regular repayments towards a debt over a long period of time.
If you’re currently living in a rental property, the lender may request a rental reference letter from your property manager to provide proof that you won’t pose an unacceptable level of risk as a borrower.
Banks and other lenders don’t hand out money to anybody who walks through the door. In fact, most Australian banks have a conservative approach to lending money and will always look to minimise their risk. What this means for borrowers, and first homebuyers in particular, is that you need to jump through hoops in order to prove that you are capable of repaying the amount you wish to borrow. This is especially true if you want to borrow more than 90% of the property purchase price, so the lender will ask for details about your income, assets, liabilities, savings and rental history.
Most lenders have a policy that requires you to provide proof of savings over a period of three to six months, which commonly take the form of regular contributions to a savings account in your name. Commonly referred to as genuine savings, the bank balance you’ve built up needs to add up to at least 5% of the price of the property and also be able to cover the other costs of purchasing the property (stamp duty, conveyancing, loan application and establishment fees).
If you can’t provide proof of a regular savings history across a period of three or more months — maybe you were given the deposit amount as a gift from your parents, for example — many lenders will refuse your application unless you can provide other evidence of your saving ability.
One way you can prove your ability to save and make repayments is with a rental reference letter. This is a signed declaration from your property manager that details the amount of weekly rent you’ve paid for the past year and confirms that you’ve always made your rent payments on time.
A rental reference letter can also be used to improve the chances of your loan application being approved if you have a less-than-perfect credit history. Even if you can’t prove that your deposit came from regular savings, a rental reference letter can provide proof of your capacity to potentially make mortgage repayments as it shows that money is regularly being deducted from your bank account in order to pay rent.
If you’ve been asked by a lender to provide a rental reference letter, it’s quick and easy to find a template online that you can ask your rental property manager to fill out. Rental reference letters need to include:
The lender will advise you if there is any other information or documentation that needs to be included.
One in four (25%) Australians are worried about how they will pay the rent or mortgage after Christmas, according to new research by Finder, Australia’s most visited comparison site. Find out how the Finder App can help save you money in 2021.
Your guide to home loan LVRs and how you can determine your loan to value ratio.
An annual land tax should replace the one-off financial sledgehammer of stamp duty on property purchases, say experts. All experts (40/40) participating in Finder's RBA cash rate survey are predicting a cash rate hold this December.
Do you have to tell your lender if you rent out a room and turn your mortgage into an investment loan?
Need an owner-occupier home loan? Compare rates, understand home owner tax rules and more.
A detailed explainer of the concept of home equity and how property owners can make use of it.
While COVID-19 has delivered a number of economic challenges, there is one area where Australians have benefits – with investment loans now cheaper than they've ever been.
Read Finder's guide to understanding principal and interest home loans.
SPONSORED: Saving enough for a house deposit while you're paying rent is challenging, but it can be done.
The Special Fixed Home Loan from Sydney Mutual Bank is a fixed rate mortgage for owner-occupiers and investors. Available with a 5% deposit.