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How to buy a home on a single income

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Being a single parent comes with a host of challenges. Among them is figuring out how to properly finance a home purchase. However, buying a home on a single income, although difficult, is not impossible.

Single parents have a lot of resources available to them, some may not be as widely known. From single parent home loans to government initiatives, you can get a loan for the home of your dreams even on a single income.

In this guide, we walk you through all the steps you need to take so you can successfully get a home loan as a single parent.

Step 1: See if you’re eligible for a Family Home Guarantee

As a single parent, you may be eligible for one of the home buying initiatives by the Australian Government. If you’re struggling to save a 20% home deposit, you may be eligible for the Family Home Guarantee (FHG) which supports single parents who have at least one dependent. This applies to both first-home buyers or previous homeowners.

With the FHG, part of your home loan from a Participating Lender is guaranteed by the National Housing Finance and Investment Corporation (NHFIC). This means you can buy a home with as little as 2% deposit and avoid paying Lenders Mortgage Insurance

To be eligible for the FHG as a first-time home buyer, you must meet the following criteria:

  • At least 18 years old.
  • Must be single.
  • Must be applying as an individual.
  • Have at least one dependent child.
  • Hold Australian citizenship.
  • Earn a regular income of no more than $125,000 per year.
  • Must intend to be owner-occupier of the purchased property.
  • Does not currently own property.

If you’re a previous owner, the same eligibility requirements apply, except you cannot own the following:

  • A freehold interest in real property in Australia.
  • A lease of land in Australia.
  • A company title interest in land in Australia.

Using the FHG, you can buy a residential property like an existing house, townhouse, or apartment, a house and land package, or a land and a separate contract to build a home. The FHG is quite flexible and can be used to finance the home you want and need.

By taking advantage of the FHG, you can avoid worrying about the 20% deposit and apply for a loan straight away. If you meet the eligibility criteria, use the FHG to purchase your home sooner.Additionally, meeting the eligibility does not automatically guarantee that someone will qualify for a home loan.

Other factors, such as credit history and employment status, will also be taken into consideration by the lender when assessing an individual's loan application. It's important to do research and compare different lenders and loan products to ensure you're getting the best deal for your financial situation.

Additionally, meeting the eligibility does not automatically guarantee that someone will qualify for a home loan. Other factors, such as credit history and employment status, will also be taken into consideration by the lender when assessing an individual's loan application. It's important to do research and compare different lenders and loan products to ensure you're getting the best deal for your financial situation.

Step 2: Know your borrowing limit

Understanding how much you can comfortably afford is vital so you don’t overextend your finances. As a single parent, balancing your expenses can be a difficult task. Don’t add to that by borrowing more than you can manage. Aside from the home deposit, you have to think about monthly repayments. Use our handy borrowing power calculator so, you can have a clear idea of what your borrowing capacity is.

Your borrowing power is likely smaller than the average household, which limits your options. But the good news is, borrowing a smaller amount means lower repayments and possibly lower interest rates, as well.

Calculate borrowing power

Step 3: Set realistic expectations

You have your budget down and you know how much you can afford to borrow, it’s time to set your goals. Researching different homes in various neighbourhoods to see which ones are more in your price range can be helpful. Strictly stickto the budget you made. It’s tempting to look at the homes first and the price later, but there’s nothing more heartbreaking than finding the perfect home only to find it out of your price range.

Use our helpful suburb report or property report to learn more about the areas and homes you’re interested in. List down all the features your family needs in a home, these are the non-negotiables, to help you find a home that’s best for you.

This is also the time to look at your expenses and see where you can cut back. This doesn’t mean doing away with essentials or settling for lesser quality items. You don’t have to sacrifice a lot to make significant savings.

Ask yourself simple things like do you really need four TV streaming subscriptions? Could you forego that pricey F45 gym membership for a cheaper gym membership, or better yet, working out at home or in the park for free? Things like these may seem unremarkable, but it can save you hundreds if not thousands of dollars in the long run.

Step 4: Get your finances in order

As a single parent, lenders may see you as higher risk because you’re in a single income household. To assess your loan application, To assess your loan application, lenders will look more carefully at your disposable income and genuine savings to ensure you have the capacity to make repayments.

Before you start applying for home loans, make sure you have at least six months’ worth of savings and good credit score. Pay your bills on time and minimise your debt as much as you can. This will reassure lenders that you have good financial spending habits and have enough money for repayments.

Step 5: Shop around for the right loan

Not all home loans are made the same. Every loan has different policies, interest rates, and terms. There are also plenty of different home loans out there. Before you start applying for a home loan, always make sure you shop around first. Research different lenders and compare rates to know which one best suits your requirements.

The best loans generally offer low interest rates, transparent fee structures, and provide flexibility to meet your everchanging needs as a single parent. Study each loan option carefully and raise any questions with the lending specialist. It’s always a good idea to ask questions. Compare different low rate home loans here.

Step 6: Consider all your options

If you have family or friends who are in a good financial position, you could ask them if they’re willing to act as guarantors for your loan. Having a guarantor on your loan provides lenders with an extra level of security and might improve your chances of getting your home loan approved.Check and make sure your lender allows a guarantor on your loan.

You may also consider other ways toget sufficient funds for your home purchase like rentvesting. This is where you buy an investment property that’s within your budget and continue renting in the area you want to live in. It might take you longer to buy a home, but you may end up in a better financial position when you do.However, before making any decision, it's best to consult with a financial advisor or a lawyer to fully understand the potential legal implications of rentvesting.

Step 7: Strengthen your loan application

By this point, you’ve got all your finances in order and you’ve found a loan that fits your needs. Now, all you need to do is make your home loan application as strong as possible. This part is relatively easy. All you need to do is to prepare the needed documents such as:

  • Proof of identity
  • Proof of income (e.g., pay slips, tax records)
  • Bank statements

This not only hastens the loan application process, but it shows lenders that you’re ready for the responsibility. Also, make sure to review your credit report and improve your credit score where possible. A higher credit score typically increases your chances of getting a home loan as a single parent.

Step 8: Apply for a loan

Last but not the least, apply for your loan! You’ve done all the necessary preparations and it’s time to finally submit your application.

Find the best low rate home loan for you at loans.com.au

As a single parent, finding the best home loan for your situation can be tough. Let us at loans.com.au help you get the best loan. Talk to our friendly lending specialist today andget you started on your home buying journey.

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About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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