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Does HECS affect applying for a home?

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Many students take out an HECS-HELP loan to get them through university. The repayments are taken out directly from their wages and deducted by their employer. Because of this, people tend to forget including their HECS debt when reviewing their finances and taking out a loan.

It’s best to remember that just like any other debt, having outstanding HECS-HELP loans can affect your home loan and borrower power. In this article, we walk you through how to navigate loan application with HECS debt.

How does a HECS debt affect your home loan application?

When applying for a home loan, you will need to disclose your assets, liabilities, and debts—including your HECS-HELP loan. The lender will consider all your financial information in an affordability assessment. This lets the lender figure out whether the loan you want is suitable for you in your current situation.

Your HECS-HELP debt is treated the same as any other type of debt like personal loans or credit card debts. You need to prove that you can meet your ongoing HECS repayments as well as your home loan repayments to receive approval.

Take note that a HECS-HELP loan impacts your income. Lenders will look at your income to determine how much you’re able to comfortably pay back which will affect your home loan.

How does a HECS debt affect your borrowing power?

Having HECS debt affects your debt-to-income ratio which impacts your home loan application, as well. Your debt-to-income ratio is calculated by dividing your debts and liabilities by your gross income. Lenders use this ratio to determine your ability to make repayments.

A low debt-to-income ratio is ideal as it means you have more than enough income to service your debts. If you have a high debt-to-income ratio, this signifies that a large portion of your income is used to pay back debts. The lower your debt-to-income ratio, the higher borrowing power you have.

Typically, if you have more borrowing power, you have better chances of getting a higher home loan amount approved. You can use loans.com.au ’s online borrowing capacity calculator to compute your borrowing power.

Calculate borrowing power

Should I repay HECS debt before applying for a home loan?

It depends on your specific financial circumstances. If you have a good debt-to-income ratio, then having outstanding HECS debt may not make much of a difference. However, if paying off the HECS debt puts you in a significantly better financial position, it may be worth doing so before applying for a home loan. Review your finances to see which option is best for you.

Tips to make applying for a home loan with HECS debteasier

A HECS-HELP loan shouldn’t stop you from your home buying endeavours. Here are some useful tips to keep in mind when applying fro a loan with HECS debt:

Know your exact HECS debt balance

Your outstanding HECS debt can change depending on how much you’ve paid off versus how much it has increased with in annual indexing. While you aren’t charged interest on a HECS-HELP loan, it will be adjusted to be in line with the Consumer Price Index (CPI) otherwise known as inflation.

Here are ways you can check your HECS debt balance:

  • Log into your HECS-HELP portal

  • Log into your myGov account

  • Contact the ATO on 1300 650 225

Reduce other existing loans and debt

If you can, make voluntary repayments on any outstanding loans to minimise your debt. This may increase your borrowing capacity. Also, having less debts could make lenders see you as less of a risk and provide better rates or a larger loan amount.

Save for a bigger deposit

Another way to improve your home loan application is by saving up for a bigger deposit. With a large deposit, you can lower your loan-to-value ratio and increase your borrowing power.

Look at government grants or incentives

Those with HECS debt could still apply for government assistance when buying a home. See if you’re eligible for any grants, schemes, or incentives like the First Home Owner Grant or the First Home Loan Deposit Scheme.

Speak with a lending specialist

If you’re still unsure about what to do with your home loan, it’s best to go to a professional. Discuss your situation with a lending specialist and talk about the best course of action. Find out about the different loan options available to you and which finance product best suits your needs.

Get in touch with loans.com.au!

Call our friendly lending specialists today at 13 10 90. Or start your loan application online. When it comes to your home loan, we’re here for you every step of the way. Let’s discuss your home loan goals today!

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Other helpful resources:

Your Guide to Buying Your First Home
How long does it take to get a home loan approval?
Our home loan process

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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