Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
If you are single, home ownership is a daunting prospect. You are making a huge financial decision on your own, relying completely on your own ability to pay. Even without the extra money two incomes brings, lenders are wary of single people, as they do not have contingencies for unforeseen circumstances preventing them from working. A lender would much rather give the same loan to a household with two sources of income than with one, even if both earned the same amount.
Clearly though, many are not intimidated by this. In 2019-20, the ABS reported that only 69% of first home buyers were couples or couple families. This leaves 31% of all purchases being made outside a marriage or de facto relationship.
Below are several things you can do to help you buy a house alone.
Just because you don’t have a romantic partner doesn’t preclude you from co-ownership. An increasingly popular option is buying a house with a close friend or family member. This gives you two incomes to work with, expanding your purchasing power much like a spouse would.
Even if you decide you don’t want to share a 30 year mortgage with your annoying cousin, it still doesn’t mean your loved ones can’t help you out. If you are buying alone, ask for input from others at every stage of the process. Having people come with you to inspections is a great way to make sure you don’t miss any glaring flaws, and discussing your loan options with family and friends who have already bought will help you navigate the nuances of the mortgage world. Second, third and fourth opinions are always useful, and having help with the major decisions should give you reassurance you are making the right calls.
A good way to mitigate your riskiness in the eyes of the lender is to nominate a guarantor. This is a person, typically a close relative like a parent, who agrees to assume the burden of the loan should you be unable to make payments. The guarantor offers equity in their own home as additional security for the loan. Using a guarantor often also will mean you can avoid paying Lenders Mortgage Insurance (LMI). Lenders take out this insurance to cover the risk of high Loan to Value Ratio (LVR) lending, which means that amount borrowed is a large proportion of the home value itself. The threshold is normally 80%, so if the loan is more than 80% of the value of the property, LMI applies. However, with the additional security the guarantor provides with their own property, the LVR can often be reduced to avoid LMI.
Again, a second income stream will not only give you more money to put towards your home, but will go some way to reassuring your lender that you are not wholly reliant on a single cash flow.
Your second income could come from a second job, perhaps driving for Uber or Lyft in the evenings, or it could be the business you’ve been meaning to start since you were 19. Whatever it may be, multiple income streams are very positive for your prospects of securing a loan.
The larger your deposit, the less you will need to borrow, the less interest you will pay, the sooner you will have 100% equity in your new house. The only major drawback to waiting for your deposit to swell is just that: waiting. Saving takes time, especially when you’re the only one doing it. Saving $250 a week would take you 5 years to have enough for a $65,000 deposit. If you were looking for the 20% deposit to avoid LMI, this would give you a budget of about $325,000.
Working out a budget based for yourself is a great way to maximise saving and eliminate unnecessary expenses. Just by doing up a spreadsheet using your last three months of living expenses, you may be surprised at how far you can make your wages go with a bit more organisation.
There are many government incentives out there designed to help with the financial burden of buying a property. These can come in the form of grants, like the First Home Owner Grant, a nationwide initiative funded by the states and territories that offers a one off grant to eligible first home owners. There are also schemes like the First Home Loan Deposit Scheme, an initiative where the government acts as a guarantor for up to 15% of the value of the house. This allows buyers to secure their first home with a deposit of just 5% and avoid LMI.
There are several more of these options out there, varying from state to state. You should research these options and see if you are eligible for any.
As discussed, with a single buyer, lenders will be looking closely to assess the risk your home loan would present. Aside from your income, they will also assess your account conduct, normally from the last few months. There are several red flags they may pick up on when reviewing your account. Late payments and overdrafts are not looked upon favourably. Neither are liabilities with credit facilities, like buy now pay later payments or credit cards with a large limit. Consider going through your monthly payments and assessing whether you need to continue using services like these.
Clearing or consolidating your debts is another way to improve your account conduct.
Even if you start only eating grass and sell all of your furniture, you are probably not going to be able to afford that $900,000 apartment in Bondi on your 80 grand a year salary. With a limited budget, you’ll need to make some concessions. It’s important to identify your priorities, and even more important to work out where you are willing to compromise where others might not. For example, as a single adult, living on a main road may be less of a concern for you than for a family with three young children and a golden retriever. If you need to travel into the city for work, you might be able to find an affordable spot in the outer suburbs near a train station.
A good way to understand your budget limitations is to get pre approval before you start seriously looking for houses. This will give you an accurate estimate of your borrowing power.
Once you have found the perfect place, it’s important to not rush the next part, which is getting the loan that is right for you. There are many providers out there, all with their own pros and cons, so you should make sure you understand all your options before applying for a loan. When you are comparing products, be sure to check the comparison rate as well as the interest rate, as the comparison rate takes into account all of the fees and expenses associated with a loan, so you have a better understanding of your actual out of pocket expenses.
If you are thinking about purchasing your first home, check out our range of discounted home loan offers and helpful guides here. You can also talk to one of our lending specialists, who can help you find the right loan for you.
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