Can I rent out a spare room if I have the FHOG?

by Kirsty Fletcher
(Perth, WA, Australia)

I'm considering buying my first home, and I am eligible for the First Home Owners Grant (FHOG). I'd like to rent out a spare room to help me with the mortgage repayments, but will this cause problems?

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Jan 04, 2010
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Good Question!
by: Elizabeth Elwell-Cook (Investing in Property Rentals)

Hi Kirsty,

Good news: Of course you can rent out a room!

I don't know if you're planning to claim, or if you have already claimed but the First Home Owners Grant has one very important rule: The person (or persons) on the mortgage deed must not have owned (singly or together with someone else) property as a PPOR before claiming the grant.

This means that if you buy the property on your own (which means you must be able to hold the mortgage on your own, single income), or as a couple who have BOTH never had a PPOR mortgaged in their name, then you are fine to rent out a spare room to anyone else.

The simple rule is that the lodger (since you would have to be living in the house as well, at least for six out of the first twelve months) must not have their name on the mortgage.

What you must not do, however, is pretend to rent the room to a person who is known to be your live-in de-facto in any other legal sense.

When you apply for the First Home Owners Grant - usually in the office of your conveyancer - you must sign a form with your partner (married, de-facto or otherwise) which relinquishes their right to the Grant as an individual. This applies even if the partner's name is not on the deeds.

If, on the other hand, the partner is not living with you at the time of purchase (and probably, for safety's sake, for the six months you are required to live in the property in order to get the Grant) there should not be a problem.

I suggest you talk to a good conveyancer about this before you proceed.

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