Can I buy a house on a single income? Yes, you can!

Getting a home loan can be a bit more challenging on one income. You have to save a huge deposit by yourself, and your borrowing capacity may be lower than most dual-income applicants’.

With strategic planning and a focused approach, however, buying a home is entirely within reach.

In this guide, we will explore the important factors that single-income earners must take into account, the hurdles they may face, and a real-life client scenario showcasing how mortgage brokers can provide invaluable assistance in navigating this process.

Buying A House On A Single Income

Let’s talk about the important things you should know as a single-income homebuyer.

1. Save For A Home

Building a solid foundation starts with disciplined savings. Aim for a deposit of around 20% of the property value to avoid Lenders Mortgage Insurance (LMI) and improve your borrowing power. Plus, you have to factor in the costs related to buying a house, like conveyancing fees, mortgage fees, stamp duty and loan fees. Check out our guide on saving for a deposit for practical tips to help you save.

Saving for a deposit may be difficult or take a long time. Luckily, some lenders will accept the following alternatives as a deposit for your home loan:

  • Rent as genuine savings: You can use your rental payment history as evidence of your financial responsibility. If you’ve consistently paid your rent on time and without any issues, some lenders may consider this as proof of your ability to manage a loan, potentially waiving the requirement for a traditional deposit. Note that even if the bank accepts your rental payments instead of genuine savings, you’ll still need to provide a minimum deposit of 5% of the home’s purchase price. This ensures the bank that you have a vested interest in the property and are committed to repaying the loan.
  • Personal loan as deposit: You can take out a personal loan to fund your deposit. This can be a good option if you have a good credit score and a steady income. However, keep in mind that taking out a personal loan will increase your overall debt load. Make sure you can comfortably afford the monthly payments on both your personal loan and your home loan before you decide to go this route.
  • Gifted deposits: A gifted deposit is a cash gift, usually from your parents, that can be used to help you buy a home in Australia. The gift is unconditional, meaning you do not have to repay it. You will need to provide your lender with a gift letter from the donor, which states that the money is a gift and does not need to be repaid.

Besides these options, there is national and state government help so single-income earners can buy a home sooner. Let’s explore these options in the next section.

2. Look Up Government Initiatives For Single-Income Borrowers

Explore government initiatives that are made for single-income individuals. Programs like the Family Home Guarantee and First Home Guarantee offer valuable support, enabling home purchases with deposits as low as 2% and, in some cases, zero LMI. Three schemes fall under it – Family Home Guarantee, First Home Guarantee, and Regional First Home Guarantee. Let’s go through each below.

Family Home Guarantee

The Family Home Guarantee is a government initiative designed to help single parents or single legal guardians with dependants purchase their own home with a smaller deposit. Single parents or guardians can purchase a home with a deposit as low as 2% with the help of this scheme. They can also benefit from not having to pay the LMI, typically required for deposits of less than 20%, as the government guarantees up to 18% of your loan, making it less risky for lenders.

As of 1 July 2023, there are 5,000 places available under the Family Home Guarantee scheme until 30 June 2024. This means there’s a limited window for eligible single parents or legal guardians to take advantage of this fantastic opportunity to purchase their own home with a deposit as low as 2%. Don’t miss out – contact us today to learn more!

First Home Guarantee

While not specifically targeted at a single-income household, this government initiative is aimed at helping eligible first-time buyers purchase a home with a lower deposit. The government acts as a guarantor for up to 15% of the property value. This means you can purchase a property with a deposit as low as 5% of the purchase price. You can combine the First Home Guarantee with other government grants and concessions, such as the First Home Owner Grant and stamp-duty concessions. Visit our First Home Guarantee page for more in-depth information.

Regional First Home Buyer Guarantee

The Regional First Home Buyer Guarantee Scheme is a government initiative that helps homebuyers who have not owned a house in the last decade purchase a home in a regional area with a smaller deposit – as low as 5%. There are 10,000 places available for eligible applicants until 30 June 2024. The quota usually resets on 1 July.

Note that there are income caps for individuals and joint applicants, and each state has property price caps. Get more detailed information about this scheme on our Regional First Home Buyer Guarantee page.

Don’t Qualify For Home Guarantee Scheme? There are Others

There are also shared-equity schemes available to help you buy your home sooner. The nationwide Help to Buy Scheme is set to start in 2024, and some states offer their own versions, like NSW’s Shared Equity Home Buyer Helper and the Victorian Homebuyer Fund.

You should also explore initiatives like the First Home Owner Grant if you are a first-home buyer. Grants can range from $10,000 to $30,000, depending on the state. Find out if you are eligible to get these benefits. If you do not meet the requirements, you may still qualify for other government grants and stamp-duty concessions.

3. Calculate Your Borrowing Power As A Single Applicant

Knowing your borrowing power is fundamental. It is influenced by factors such as income, existing debts, living expenses, credit history, assets, deposit size, and loan terms. Lenders consider these factors to assess your repayment capacity and evaluate the property’s value.

If you have dependants, such as a spouse, children or pets, lenders will view them as liabilities, potentially reducing your borrowing power.

Use our How much can I borrow calculator to estimate your limits. This knowledge empowers you to make informed decisions, aligning your goals with your financial reality.

Now that we’ve covered borrowing power, let’s talk about what you can do to increase your chances of getting a loan.

4. Increase Your Chances Of Approval

Lenders scrutinise more than just your income; they assess your entire financial situation. You can increase your chance of approval for a single-income home loan by maintaining:

  • solid savings
  • a good credit score
  • minimal unnecessary debt.

Having alternative assets can significantly strengthen your loan application. These assets may include rental income, substantial term deposits, shares, or a high-value job with bonuses and commissions. Each of these elements adds layers of financial security, showcasing to lenders that you have diverse income streams and valuable assets, reducing the perceived risk of lending to a single-income individual.

Getting a home loan approval on a single income can be challenging, but it’s not impossible. Read our article on five ways to increase your chances of getting approved for a home loan on a single income.

5. Explore Different Lenders

Diversity exists among lenders regarding income requirements, borrowing power and interest rates. Shop around to find the lender and loan that best fits your needs. By comparing offers from multiple lenders, you can identify the one that offers the most competitive interest rates, lowest fees and most flexible terms.

You may also be eligible for LMI waivers if you work in certain professions. These packages waive LMI for a loan-to-value ratio (LVR) of up to 90%. This is mostly available for workers in the medical, legal and accounting fields.

Home Loan Experts mortgage brokers can be invaluable allies in this process. Our experts have access to a wide network of lenders and can compare offers on your behalf. They can also help you navigate the application process and ensure that you have all the necessary documentation ready.

6. Set Realistic Expectations

Get pre-approval before you start your property shopping. This will provide you with a clear understanding of your borrowing power and the type of property you can afford.

Align your expectations with your borrowing power. As a single-income earner, be realistic about your future home, considering smaller properties or those in outer suburbs. These options may offer more affordable entry points into homeownership, allowing you to manage your mortgage payments and other homeownership expenses comfortably.

The rule of thumb is that your housing expenses, including mortgage repayments, should not be more than 30% of your income. Beyond that threshold, you could find yourself in mortgage stress.

7. Explore Innovative Strategies

Consider unconventional approaches to achieving homeownership goals.

You can explore these alternative financing options.

  • Guarantor loans: A guarantor home loan involves enlisting the support of a family member,who uses their own property as collateral for your home loan. This can enhance your borrowing capacity and increase the likelihood of securing a more favourable interest rate.
  • Low-doc loan: Designed for borrowers with limited documentation, these loans offer flexibility for those with non-traditional income sources or freelance work.

Hurdles To Buying A House On A Single Income

While buying a house on a single income is achievable, it comes with its own set of hurdles. Here are some of the common ones you might encounter:

  • Less borrowing capacity: With only one income to rely on, you will typically get approved for smaller loan amounts. This limits the price range you can consider.
  • Saving large deposits and other costs: You’ll need to save a 20% or larger deposit to get attractive loan terms. Plus, factor in stamp duty, conveyancing, and moving costs – it demands major savings.
  • May need to compromise on property price: Your reduced borrowing power, together with large deposit needs, often means compromising on the property size, location or amenities.
  • Need for great credit: Lenders look very closely at credit history and debt levels with single borrowers. You must demonstrate responsible conduct over time to secure finance.
  • A tight budget: There is less wiggle room with one income. From loan repayments to council rates and utilities, you have to stick to a tight budget. Unexpected costs can hurt.

The key is understanding these hurdles from the start and factoring them into home-buying plans. Speak to a mortgage broker, and keep finances manageable.

I Am Recently Separated And On A Single Income, What Can I Do?

For those who have just transitioned to a single income, managing finances and maintaining a comfortable lifestyle can be challenging. Deciding what to do with jointly owned property after a divorce or separation is an important decision, especially when considering its impact on your overall financial stability.

In such situations, it is important to assess your financial capacity and explore various options. If feasible, buying out your ex-partner’s share could provide you with sole ownership and control over the property. However, this requires qualifying for a new loan and ensuring it aligns with your budget. Learn everything you need to know on our page about buying out a partner on a mortgage.

Alternatively, selling your share to your ex-spouse or jointly selling the property and dividing the profit can be viable options. This not only helps in separating financial ties but also provides a potential source of funds that could be used as a deposit for another property in the future.

A Mortgage Broker’s Heartfelt Triumph In Securing A Single-Income Home Loan For A Resilient Client

Here’s how Home Loan Experts Senior Mortgage Broker Vivienne Than not only secured a home loan for her client but also provided support during a challenging time.

Alice had to sell their family home due to a divorce settlement. Due to the tight rental market in Victoria and the requirement to enrol the kids in a nearby school for convenient commuting, Alice had to buy a new home. Understanding the situation, Vivienne explored the option of bridging finance.

However, with a single income and two dependants, Alice’s ability to service the peak debt was strained. Vivienne had to find a lender that assessed servicing based on the end debt position. Even then, the servicing was a challenge. She recommended that Alice request a pay rise, and fortunately a 5.5% increase in income proved to be the boost she needed to meet the servicing requirement.

Further complications arose. Slow market conditions led to a lower-than-expected property valuation. To cover the shortfall, Alice reached out to her mother for financial assistance. Her ex-partner’s push for a swift sale added pressure, potentially affecting fair property pricing.

The divorce agreement imposed additional time constraints, intensifying Alice’s load. Balancing divorce proceedings, parenting, work, property transactions and financial limitations was demanding.

Vivienne’s consistent support proved vital, boosting the client’s confidence in navigating these challenges. Through persistence and collaboration, she not only secured her financial future but also emerged stronger in the face of adversity.

Making these decisions can be hard, and getting advice from a mortgage broker can really help. At Home Loan Experts, we understand the special problems that borrowers face in situations like these. Our experts can help you look at your money situation and assist you in making smart choices that match your long-term plans.

We Can Help You Apply For A Home Loan!

Single income? Don’t let that stop you from owning your dream home! We are known for getting approvals for tough loans, even for single-income borrowers. Our experts will guide you through every step of the process, from pre-approval to closing, and help you get matched with the perfect home loan for your single income. Call us at 1300 889 743 or fill out our free online assessment form, and we’ll contact you. Act now!