Getting a home loan on a single income isn’t impossible, but it does require you to put in some work. This article outlines how you can start climbing the property ladder without falling into a debt trap.
Yes, it is possible to get a home loan as a single mother if you meet a lender’s approval criteria. Lenders cannot legally discriminate based on gender under the provisions of the Sex Discrimination Act.
The criteria of different lenders varies, but the main concern of any lender is that you can afford your repayments. A provision of the National Credit Code in Australia requires lenders to lend responsibly. This means that they must do 3 things when assessing your single parent home loan application.
1) Ask about your financial situation
For example, you will have to answer questions about your income, expenses, A and L in your loan application.
2) Verify your financial situation.
For example, your lender may contact your employer to verify your income and ongoing, steady employment.
3) Assess that the loan is not unsuitable for your financial situation.
In other words, assess that you can afford your loan repayments.
Possibly, depending on the lender’s approval criteria.
Some lenders will be prepared to accept Centrelink payments like the Family Tax Benefit as income, though some will not. If you are an eligible single parent, you will be receiving Family Tax Benefit Part B and Part A.
Lenders that do accept the Family Tax Benefit as income may also not necessarily accept all the components of it. For example, they may not accept the medical allowance or parenting components. This is because these payment components are likely to be needed for those specific purposes. In other words, they are unlikely to be available for your single parent home loan, loan repayments.
It’s possible, but it depends on the approval criteria of your lender. It’s important to understand that a low income will lower the amount you can borrow (your borrowing power).
Lenders will calculate your serviceability ratio when assessing your loan application. This ratio is a calculation of your ability to meet your loan repayments based on your expenses and income. Your expenses include debt repayments, including the home loan you’re applying for.
Two major ways you can improve your serviceability ratio and improve your borrowing power are:
1) increase your income.
For example, if you receive a promotion at work or you change employers to get a higher paying job.
2) decreasing your expenses.
Your expenses will fall into one of two categories: essential or non-essential. Essential expenses include things like food for yourself and your child/children, and electricity. Non-essential expenses include things like entertainment and travel. You should aim to minimise or eliminate as many of your non-essential expenses as possible. This will enable you to have more income available for your loan repayments.
Yes it can be.
Single parent home loans are generally perceived by lenders as being higher risk than standard home loans. That’s because there is only one income to service the loan repayments, not two.
Ways that you can lower the lender’s risk include:
This includes researching both the real estate and home loan markets. Firstly, it’s important to know current property market prices so you know how much you might need to borrow.
Secondly, it’s also important to research the home loan market to work out how much you can afford to borrow.
You can use our calculators to check both your borrowing power and your repayments on different loan amounts.
You can also use a licensed mortgage broker to help you to find a suitable single parent home loan.
Saving for a deposit can make a difference to your chances of being approved. You need to prove to lenders that you mean business.
Try to save at least a 20% deposit if you can to increase your borrowing power. This will also help you to avoid having to pay lender’s mortgage insurance (LMI).
Researching the costs that come with buying a house can help you better prepare your finances. For example, consider the costs of your loan application, property valuation, conveyancing and pest inspection. If you aren’t prepared for these costs, it can set your budget back considerably.
Other fees that need to be budgeted for are:
This cost varies from State to State but can be a considerable amount when purchasing a property. You can make use of a stamp duty calculator to see the cost in your location.
You may also have to pay a mortgage registration or transfer fees.
These can include the ongoing cost of your regular loan repayments and fees, as well as home repairs and maintenance.
It’s important to avoid having your home loan application rejected too many times in a short space of time. Check if you meet the income requirements to get your home loan approved. It can be more difficult to get a home loan approved if you don’t have a steady income.
Ensure that you also have a good credit history to increase your chances of approval. You can develop a good credit score by paying all your bills on time. This includes rent, credit cards, electricity accounts and mobile phone plans.
You can get a pre-approved home loan to increase your negotiating power with both sellers and real estate agents. A pre-approved loan can also help you to avoid wasting time looking at properties that are outside your price range.