Will having a flatmate help you buy your first home?
First home buyers often wonder aloud about whether or not the bank will include flatmates in their mortgage affordability calculation. Will that ‘income’ let you get a bigger mortgage and a flasher house? Or even just get a house at all?
Here’s the rules with the most important one at the top:
- Where your deposit is less than 20%, flatmate income is not usually allowed. If you’re in that deposit category then you’ve got to be able to meet the bank’s debt servicing criteria on your own income. The deal has to stand up without any extra assistance from flatties.
If you can jump that hurdle then there are a number of smaller ones to follow:
- Banks will only allow 1-2 flat mates in the calculation. Loading up the house with foreign students to make affordability work, won’t work in a deposit sense (though will pay off your mortgage much quicker, once you’ve got it!).
- They’ll probably call ‘bullshit’ on you if you want to include a flatmate in a 1-bedroom home. Or three flatmates in a 2 bedroom townhouse. In a similar vein, a couple doesn’t count as 2 flat mates – they’re one entity. The bank calcs for lending are worked out more on the standard bedrooms within the home, rather than the number of people (or incomes) crammed in them.
- The next thing to know is that you’ll only be allowed to include between $150 – $200 a week per flattie. By all means sign up 4 flatmates at $300 a week each – just realise that the bank will probably say something like ‘two flatmates, $150/w each, that’s it’.
But what if I have 20% deposit already?
If you’re lucky enough to have a 20% deposit then flatmate income can usually be included in the ‘how much can I borrow’ calculation. The smaller hurdles will apply to you, but the fact you’ve got 20% sitting in your hand (or KiwiSaver) can often make quite a difference.
Irrespective of what the bank allows in their rules for borrowing, feel free to load the house up with flatmates or students or whatever. It’s your house, you do what you want! Just don’t bank on the bank including all that income when it comes to working out how much you can borrow. While occasionally useful at helping secure a mortgage pre purchase, for the most part flatties are more useful as a post-purchase asset, whittling your mortgage away for you.
Wanna see how a flattie or two could help your cause? Give us a call.