Getting a Home Loan on a Single Income

Having two incomes can provide significant advantages when saving for a house deposit. While obtaining a home loan on a single income may present additional challenges, it is not insurmountable.

Saving for a Deposit

The amount needed for a house deposit can vary depending on several factors, and it’s important to debunk the myth that a 20% deposit is an absolute requirement. While many Australians believe this to be the case, it’s not entirely accurate, and there are options available that require a lower deposit.

Traditionally, a 20% deposit has been considered ideal because it allows borrowers to avoid paying lenders’ mortgage insurance and may result in more favourable loan terms. However, with rising property prices and changing market conditions, saving such a large deposit can be challenging for many aspiring homeowners.

Depending on the lender and specific loan product, the minimum deposit required can be as low as 5% of the property’s purchase price. Remember that a smaller deposit often comes with the requirement to pay LMI, which is insurance that protects the lender in case the borrower defaults on the loan.

How to Secure a Home Loan on a Single Income

Buying a home on a single income is achievable as long as you meet the requirements for a home loan. While couples may have the advantage of dual incomes to boost their borrowing power, there are steps you can take to increase your chances of securing a home loan approval on a single income.

Understand Your Borrowing Capacity

Start by determining your borrowing power, which indicates how much you can borrow for a home loan. Lenders consider your income, expenses, existing debt, dependents, and applicable interest rates. This assessment helps establish a realistic home-buying budget and determines the appropriate loan amount.

Explore Income-Boosting Options

If your borrowing power seems limited, consider ways to increase your income. Request a pay review at work if you haven’t had a raise in a while. Alternatively, explore side gigs or turn your hobbies into income-generating opportunities. Taking on a second job or starting a side hustle can provide additional funds to enhance your financial position.

Save Diligently

Every dollar saved contributes to your deposit and reduces the amount you need to borrow, improving your loan approval chances. Suppose you’re struggling to build a deposit. In that case, you can consider options like temporarily moving back in with your family to save on rent or adopting effective savings strategies to cut unnecessary expenses.

Compare Lenders

Different lenders have varying criteria for income requirements, borrowing capacity, and deposit sizes. Shopping around and comparing lenders is crucial, particularly when you’re a single-income earner. Additionally, lenders offer different interest rates, so finding a lender with a favourable rate can make your home loan more affordable. If you’re short on time, utilizing a mortgage broker and comparison websites like ratebuster.com.au can help you navigate the options and find a suitable home loan.

Explore Government Support Schemes

Various government support schemes exist that can assist single-income home buyers. While not all schemes are tailored explicitly for single-income earners, they may still provide opportunities to enter the property market. Examples include:

The First Home Guarantee: This scheme allows eligible first-home buyers to purchase a home with just a 5% deposit and no LMI. It offers limited places, so check the eligibility criteria and availability.
Family Home Guarantee: Designed for single parents with at least one dependent child, this scheme helps them purchase a family home with a deposit as low as 2% and no LMI. It is not limited to first-home buyers, and income and property price limits apply.
First Home Loan Super Saver Scheme: This scheme allows you to save money for your first home by contributing to your superannuation fund. Contributions can be made before or after tax, up to certain limits. The scheme allows you to access up to $50,000 plus investment earnings for your home purchase. Ensure you understand the terms and conditions associated with this scheme.