Applying for a home loan on a single income can seem daunting, because lenders may assume that you are a higher risk borrower than applicants with two incomes. But, this doesn’t have to be the case. With the introduction of the Family Home Guarantee in this year’s federal budget, you may be wondering what other steps you can take to help your chances of getting a home loan on a single income.
Keep reading for our guide on how to successfully apply for a home loan with only one income in 2021.
A guide to deposits, pre-approval, & choosing the right property.
This week, the federal government announced the Family Home Guarantee as part of the 2021 federal budget, with Housing Minister Michael Sukkar touting the scheme as a significant help for single parents wanting to jump into the property market.
The Family Home Guarantee gives 10,000 single parents with dependent children the opportunity to build a new home or purchase an existing home with a deposit as little as 2%, without being charged Lenders Mortgage Insurance (LMI). The government will guarantee up to 18% of the borrower’s loan.
There are more details to come about eligibility criteria for the guarantee, but we know so far that applicants must be Australian citizens, over the age of 18, and have an annual taxable income no higher than $125,000. The Family Home Guarantee is also not limited to first home buyers, meaning single parents who have previously owned a home are eligible.
Given there are over 1 million single parent families in Australia, the scheme is only available to a small percentage of these families. However, if you are on a single income and are struggling to save up a big enough deposit to avoid paying LMI, it could be worth applying for the Family Home Guarantee to give you a leg up into the housing market.
See how much you might need to pay if you're low on a deposit.
Before you dive into searching for your dream home as a single income applicant, knowing what you can afford is critical. By understanding your borrowing power, you will be able to look for houses that are within your price range, meaning you have a better chance of getting approved for a home loan by a lender.
Also, single income applicants tend to have less income than a couple would, meaning you will likely need to borrow a lower loan amount - which could look favourable to lenders.
Calculate your borrowing power based on your income.
This can’t be stressed enough - save, save and save some more for that deposit. Not only does it mean you’ll need to borrow less money for your home loan, you also won’t need to pay LMI on a deposit of 20% or more. Plus, it demonstrates that you have a good savings track record.
While it may take longer to save up a 20% deposit for a single income applicant than it would for a couple, the benefits of doing so could be invaluable.
Having home loan pre-approval means you have formal indication from a lender that they are likely to approve you to borrow a specific loan amount. It can be beneficial because it gives you an idea of how much you could spend on a home, including costs like stamp duty and establishment fees. This then helps you look at houses that are within your price range, meaning you can narrow down your search.
While having a good credit score is important for any home loan applicant, it’s crucial that single income applicants are diligent about improving their credit score, as it could lower how risky a borrower a lender perceives them to be.
Paying bills on time, paying off or avoiding getting into unnecessary debt and lowering your credit card limit are all ways to improve your credit score. Having a good credit score will help bolster your capacity to pay back a loan in the eyes of a lender.
If you aren’t eligible for the Family Home Guarantee or can’t get enough money together for a large deposit, getting a family member to go guarantor on your home loan could be a solution for you.
A guarantor is typically a close relative who uses their own property as security to cover the borrower’s deposit if they do not have one or it is low. The guarantor also agrees to pay back the loan in the event the borrower cannot, so it’s a big ask.
However, for a single income applicant, a guarantor home loan could be a worthwhile option as it lowers your level of risk to the lender.
Aside from the Family Home Guarantee for single parent home buyers, there are other government schemes available specifically for first home buyers to help them get into the property market. As a single income applicant, you could be eligible for one or more of these concessions, making it easier for you to buy a home.
For example, the First Home Owners Grant (FHOG) offers grants between $10,000 and $20,000, depending on what state you are in, for first home buyers to put towards a home loan deposit. To be eligible, you must purchase a newly-built, never lived in home (or a substantially renovated home), be over the age of 18, intend to live in the home you purchase and the home must not cost more than $750,000 for most states.
This is just one example of the several concessions and grants available to first home buyers across Australia. Find out more details about other schemes to help first home buyers in Australia in our guide here.
As you can see, buying a home as a single income borrower is definitely possible. If you have more questions or need help finding a home loan that’s right for you, speak to one of our Home Loan Specialists at a time that suits you.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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