Yahoo Finance How to get a home loan on a single income
These days, the great Australian dream of homeownership can feel out of reach for most, especially those on a single income.
If you’re a single who’s ready to commit to your first home or investment property and you don’t have anyone with whom to split the associated costs, the process of securing a mortgage can often feel overwhelming and challenging to say the least.
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Alas, it’s not all doom and gloom for Australian singles looking to get ahead in the property market and this dream is still very much attainable, albeit with a little effort.
Here are a few tips that will help you secure a home loan and begin climbing the property ladder with a single income.
Understand what you can afford
When looking into properties to purchase, it is important to enter the market with realistic expectations.
There’s no point viewing and applying for a loan for a four-bedroom home if you already know it’s beyond your means as a single applicant.
For this reason, it is crucial to understand your borrowing power, which is dependent on several factors such as your income, expenses and debts.
Your borrowing power is essentially the amount of funds a lender is likely to approve for you to borrow from them. Most lenders base this on their evaluation of your ability to make upfront payments and continuous repayments.
Once you have determined your borrowing power, you will be able to understand which properties are within your price range and you’ll have a better chance of getting home loan approval.
Note: Single income applicants tend to have less income than a couple would, which means you’ll need to borrow a lower loan amount. Requesting a lower loan amount is usually viewed favourably by home loan providers.
Get saving, now
Once you understand your realistic budget and borrowing power, it is time to start saving for your deposit.
It is a good idea to try your best to save as much as possible by aiming to save for the largest deposit possible, not just the base-line 20 per cent.
As difficult as this may seem, reaching this goal is achievable by using several saving strategies. A great place to start is cutting down on non-essential spending, building a side hustle to gain extra income, making sacrifices where necessary, asking for contributions to your loan rather than gifts, paying off existing debt, and improving your credit score.It might also be worth looking into automating your savings on a periodic basis, which can be arranged with your bank. This allows for steady savings with no ongoing effort.
If you can save up a significant amount of money before you begin to apply for your home loan, it also means you will need to borrow less money, and you likely will not need to pay LMI (Lenders Mortgage Insurance).
Consider a guarantor
Suppose you do not have enough savings for a deposit, but you can make the required home loan repayments. In this case, you should consider asking a family member that already owns a property to be your guarantor (i.e. applying to the Bank of Mum and Dad).
The guarantor does not have to pay anything, but they agree to pay some of the mortgage if you cannot.
Not only does this make your application appear like a durable and worthwhile option, because it lowers your level of risk to your home loan provider, but it could also help you avoid paying LMI.
Take advantage of first home buyer perks
Did you know that if you’ve never owned a home before, chances are you may be entitled to some first home owner benefits? It’s a good idea to use these to your advantage, especially when it comes to saving for your first home loan.
Here is a breakdown of some of the available options:
1. First Home Owner Grant (FHOG)
Many state and territory governments extend cash FHOGs for first-time buyers over the age of 18 and are Australian citizens, to support the purchase of a home. The grant is a one-off payment and is restricted to new homes under a certain price threshold in most jurisdictions.
In New South Wales, the state government offers a $10,000 FHOG for the purchase of a new home valued at $600,000 or for buying land where a new home will be built. First-time buyers in NSW are also eligible for an exemption from transfer duty for new homes worth less than $800,000, as well as existing homes not exceeding $650,000.
In Victoria, first-time buyers can qualify for a $10,000 grant for urban homes and a $20,000 grant for regional homes worth up to $750,000. Buyers of homes below $60,000 are exempt from paying stamp duty.
In Queensland, first home buyers are able to access a $15,000 grant for homes worth less than $750,000. The state government also provides a $5,000 grant for first-time buyers who are looking to build a new house, unit, or townhouse in regional Queensland priced at $749,000 or lower. In terms of transfer duty exemptions, these are available for homes up to $550,000 or vacant land valued up to $400,000.
For first-home buyers based in South Australia, they can receive up to $15,000 for the purchase and/or construction of a new home valued up to $575,000. The South Australian government does not provide stamp duty concessions for first-time buyers.
The West Australian government supplies a $10,000 FHOG for new homes worth up to $750,000. Transfer duty exemptions and concessions are also available for first-home buyers of homes less than $530,000 and vacant land less than $400,000.
In Tasmania, first-home buyers can access a $20,000 grant for the purchase and construction of a new home or buying off-the-plan property, as well as a 50 per cent discount on stamp duty if the home is worth up to $400,000.
In the Northern Territory, first-home buyers can get a $10,000 grant when purchasing or constructing a new home of any value. The NT government also offers a $18,601 Territory Home Owner Discount (THOD) on stamp duty costs on top of this.
2. First Home Loan Deposit Scheme (FHLDS)
FHLDSs allow first home buyers who are over the age of 18, Australian citizens and earning $125,000 or less annually as a single, to purchase a property for as little as 5 per cent deposit, eliminating the need to pay lender’s mortgage insurance.
However, it’s important to note the FHLDS is limited to 10,000 borrowers in a given financial year.
Under the scheme, first home buyers can choose to purchase a range of different property types, including an existing house, townhouse or apartment, a house and land package, land together with a separate contract to build a home, an off-the-plan apartment or townhouse, or an eligible building contract.
The FHLDS is administered through the National Housing Finance and Investment Corporation in partnership with 27 lenders across the country, including the National Australia Bank and the Commonwealth Bank.
3. First Home Super Saver Scheme (FHSS)
The FHSS allows first home buyers over the age of 18 to withdraw a portion of their extra super contributions, a maximum of $15,000 per financial year, and use it as a deposit for their first home.
Applicants must also be buying a home for residential purposes and be planning to live in the property for at least six months, within the first 12 months of ownership.
All in all, getting your foot in the door of the property ladder can be daunting, but buying a property with a single income stream is an outstanding achievement. Short-term sacrifices do pay off and the preparation to get there will be priceless.
Brodie Haupt is CEO and co-founder of WLTH.
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