So, your single, happy and lookin’ to buy your own place. Easy, right?
Apart from putting the deposit together to buy in the current market, getting approved for a home loan is a lot harder if you’re single. Really.
Most banks see couples, whether de facto or married, as more stable and, overall, more reliable as borrowers. The reason is that banks like the fact that if something happens to one partner, the other can still carry the loan.
With only one source of income, it will not only take a single borrower twice as long to save up a 5 per cent deposit but your borrowing power is cut significantly.
The reason is that the cost of living is usually higher for single people and banks will usually credit score you a little harsher if you’re borrowing more than 80 per cent of the purchase price.
For example, if you earn under $100,000 a year, are renting and have personal debts like credit cards and HECS/HELP debt, it will massively affect your ability to borrow when a lender calculates the ratio of your debt compared to your gross income.
Discover how much you can borrow with our ‘How Much Can I Borrow?’calculator.
As a general rule, you should be spending no more than 35 per cent of your gross income on your mortgage repayments. That’s why it’s essential to speak to a mortgage broker before applying for a loan so you can avoid unnecessary mortgage stress.
One thing single borrowers often forget to factor in is the possibility of an interest rate rise in the future. Again, managing your mortgage repayments is much easier with two people liable for the loan.
For singles, banks look critically at your job stability, in particular, how long you’ve been employed and whether you’re working full time or part time.
For single women with kids, contract or part time work may be the only option available to you, but most banks aren’t likely to consider your it favourably anyway.
The reason is that you only have one income coming in so if your child falls sick and childcare falls through, your first priority is going to be your child, not your job. Most banks see this as risky but, luckily, there are some lenders that will take into consideration any government payments you receive as a single parent such as family tax benefits and child support when they assess your income.
Divorced people are also scrutinised heavily by the bank when they apply for a loan. Divorce itself can be both an emotional and financial drain with a common problem being credit issues.
Black marks on their credit file may be the result of not being able to meet their debts as advised by their solicitor. They may also have a low asset position and little to no savings due to a particularly brutal divorce settlement.
If you’re intending to buy out an ex partner, you should be aware that banks assess the application as both a purchase and a refinance. As such, you will need to prove that you have the funds to pay out your partner if there is not sufficient equity in the property.
You must also have good repayment history on your current home loan the same as if you were applying for a loan to refinance a property. The bank valuation is crucial and luckily we know which banks will look favourably on your application so you can avoid adding unnecessary enquiries to your credit file.
If you’re single and need a home loan, mingle with us by calling 1300 889 743 or fill in our free assessment form and discover how our mortgage brokers can help you.