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Single Parent Home Loans

Are you a single parent wanting the security of your own home? A single parent home loan could be an option for you!

Single Parent Home Loans

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.

Can I get a home loan as a single mother?

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.

Can you get a single parent home loan if you’re receiving Centrelink benefits?

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.

Can I get a single parent home loan on a low income?

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.

Is the interest rate higher on a single parent home loan?

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:

  • increasing your deposit.
  • borrowing less.
  • having a guarantor for your loan. A guarantor is a family member who agrees to become legally responsible for your loan repayments if you don’t make them. The guarantor must meet the lender’s approval criteria.

Top tips for single parent home loans

Ways to help you get your loan application approved if you have a single income

Do your research

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.

Start saving for a deposit

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).

Consider all your purchase fees

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:

    • Stamp duty

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.

    • Legal and transfer fees

You may also have to pay a mortgage registration or transfer fees.

    • Ongoing fees and charges

These can include the ongoing cost of your regular loan repayments and fees, as well as home repairs and maintenance.

Don’t apply before you’re ready

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.

Get a pre-approved loan

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.

What else you need to know about single parent home loans

Here are the answers to other FAQs that we get here at Savvy.

Can I get any government help with my deposit for a single parent home loan?

Besides any regular Centrelink payments you may receive like Family Tax Benefit, you may be eligible for other government assistance. If you’re a first home buyer, you may be eligible for the First Home Owner Grant (FHOG).

You may also be eligible for the First Home Loan Deposit Scheme, which will help you to avoid the cost of LMI.

Should I get income protection insurance if I have a single parent home loan?

Yes.

Income protection insurance is especially important if you’re a single parent. It can give you peace of mind. It will enable your loan repayments to be made if you are unable to work or lose your job.

You may already have income protection insurance through your super fund. You should check to see if you have this cover and if it is enough for your needs. If not, you should arrange to get sufficient cover.

What is a comparison rate?

A comparison rate is the cost of loan interest plus lender fees and charges. Lenders in Australia are legally required to advertise the comparison rate on loans. That’s why you usually see two interest rates on loan products. The comparison rate is the higher of the two. The lower rate is just the interest rate.

Should I get any additional features on my single parent home loan?

Your home loan may come up with optional additional features like a redraw facility. This allows you to withdraw any extra loan repayments you make if you need to. A redraw facility can be a useful safety net.

However, it’s important to understand that there are usually fees and charges for optional extra loan features like redraw facilities. Whether they are worthwhile depends on whether the benefit outweighs the cost.

Should I get a fixed or variable interest rate on a single parent home loan?

This depends on market conditions and your individual situation. However, a fixed interest rate may give you more peace of mind because you will have repayment certainty. If interest rates go up, your loan repayments will stay the same.