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How to take out a home loan on a single income

As if being single wasn’t already hard enough, it can also make it more difficult to get approved for a home loan. Roy Morgan research from 2016 showed more than two-thirds (67.2%) of owner-occupied mortgages were held by households with two incomes.

It’s not just single people either – married couples or people in relationships who only have one income are also affected. There’s no written bias from lenders that says “don’t lend to people with one income” – they lend more to those with two or more incomes because these applicants are considered less likely to default on the loan. This is because the average mortgage repayment in Australia, according to the 2016 census, is $1,755 a month. Two incomes are much more likely to be able to afford these repayments.

So when assessing your suitability as a borrower, a home loan provider will look at your ability to meet repayments, which may well be lower if it’s just you.

But that doesn’t mean people on a single income can’t take out a home loan.

Look for a cheaper property

Since you’ve only got effectively half the borrowing power, you need to be realistic about what you can afford. According to Domain’s House Price Report, the median house prices for September 2018 were:

Median price
Hobart $478,491
Darwin $519,260
Adelaide $535,527
Perth $544,609
Brisbane $567,376
Canberra $740,215
Mebourne $852,980
Sydney $1,101,532
National $781,787

Unless you’re earning a lot, trying to afford both the monthly repayments and the deposit on these properties can be tricky on just one income. It’s generally recommended that you try to hit a 20% deposit to avoid paying thousands in Lenders Mortgage Insurance (LMI). A 20% deposit on the average house in an Australian capital city would cost you $156,000!

Looking for a house within your means can show a lender you’re serious about buying. You can also seek out home loan pre-approval, which will let you know roughly how much you can borrow.

Clean up your finances

When applying for a home loan, a lot of lenders will meticulously analyse your every expense and debt to see how good you are with money. Some of the things they might look at are:

  • Your dependents (children, relatives living with you) and how much they cost you
  • Your credit card limit and monthly repayments
  • Your car & personal loan repayments
  • Your HECS/HELP repayments
  • How much you spend on takeaway and Uber Eats (yep, some even look at this)

Applying with a single income already puts you on the back foot, so try and clean up your finances as best you can beforehand. Pay off any existing credit card debts, and show the lender you have a good stash of savings set aside for other big expenses.

Plus, obtaining a second source of income (got a side-hustle?) will likely make your bank account look a lot better.

Use a guarantor

The good thing about home borrowing is that you don’t have to do it all yourself. The vast majority of lenders allow you to use a guarantor, which is someone (usually a parent or guardian) who agrees to ‘guarantee’ the loan if you can’t pay it off by offering their own home as security. They might also agree to meet the monthly repayments on your behalf if you fall behind. Using a guarantor gives the lender peace of mind, since a lot of the risk is mitigated.

Plus, if it’s your first time borrowing for a house, you can make the most of the First Home Owners Grant, which provides a cash bonus to be used as a deposit that varies depending on your state. Just check if you’re eligible first.

Don’t forget the other costs!

It’s not just the deposit and the repayments you need to factor into your house budgeting. There are other big costs too, which can make it more difficult for a single income household to get by:

  • Lenders Mortgage Insurance (if your deposit is under 20%)
  • Stamp duty on the house (use an online calculator to find out how much you pay)
  • Transfer and registration fees
  • Home loan fees (establishment fees, settlement fees, ongoing fees)
  • Property valuation fees, conveyancing fees, mortgage broker fees (if you use one), building and pest inspection fees, removalist fees and more.

All of these extra fees together can easily add up to tens of thousands of dollars. These will also be factored into your ability to repay the mortgage, so you need to add these into your assessment.

Ultimately, getting a house on a single income is harder but not impossible. As long as you budget accordingly, look within your means and can demonstrate you are a responsible, reliable customer to a lender, you should have less trouble getting approved.

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