Centrelink home loans – are you eligible?

What is a Centrelink home loan?

There is no home loan officially called a ‘Centrelink home loan’. Rather, it describes a type of loan where certain Centrelink benefits are recognised as a form of income.

Can you get a home loan on Centrelink benefits?

You can apply for a home loan if you’re receiving Centrelink payments, but you may only be able to apply for certain loans from certain lenders. Whether or not you’ll actually successfully qualify for the loan will depend on whether the lender thinks you can afford the repayments.

When assessing a home loan application, lenders must evaluate whether you can reasonably afford the loan—not just now, but over the entire loan term. They also have to consider how rising interest rates could affect your ability to keep up with repayments. This is a legal requirement under responsible lending obligations. Lenders cannot approve a loan if they believe you’re unlikely to meet repayments without financial hardship.

If you’re applying while receiving Centrelink benefits, keep in mind that not all lenders treat these payments the same way. Each lender has internal policies that determine which Centrelink payments they consider as income. For example, some may include stable payments, such as the Age Pension or Family Tax Benefit, as part of your assessable income. Others may not accept them at all, or only if you also have an additional source of income, such as part-time work or investment returns.

In general, if you’re applying for a mortgage with someone who has a full-time job or other stable source of income; or if you have other sources of income (such as investment earnings or a part-time job), you might have a better chance of being approved for the home loan. That’s because the lender would see this extra income as reducing the risk of you being unable to make repayments.

However, if you’re applying solo or with another Centrelink payment recipient, and your only income is from Centrelink, this could make it harder. In this case you’d need to seek out a loan where the rules allow these types of payments to be considered as income.

What do lenders consider when assessing applications from Centrelink recipients?

If you find a loan that you can apply for and you make a formal application, you’ll have to go through the regular approval process. The lender will look at things like:

• Your overall income.

• The size of the deposit you have saved.

• The size of the home loan you’re seeking.

• The value of the property it’s being used to buy.

• Any existing assets and debts you might have.

• Your average household expenses (sometimes referred to as Household Expenditure Measure)

• Your credit score.

For borrowers who are on Centrelink payments, lenders may consider additional things, such as:

• The kind of Centrelink or other government benefits you are receiving. For example, if a Family Tax Benefit or a widows’ or veterans’ pension form part of your income, there may be lenders willing to approve your application. But if you’re receiving unemployment benefits as your main source of income, then most lenders will not approve your home loan application.

• The income you earn in addition to Centrelink benefits. Generally speaking, lenders that offer home loans to Centrelink recipients will want to see proof of another source of income (from your job, for example) and will consider your Centrelink benefits as secondary or supplementary income alongside this.

• Whether you’re applying with a partner. If you’re applying for a home loan with a partner who earns a full-time income and does not receive Centrelink benefits, then this may also improve your chances of being approved, as a potential lender may perceive you to be less risky as a borrower.

What Centrelink benefits can you use for a home loan?

There are an array of Centrelink benefits that banks and lenders might consider to be sources of income when assessing your home loan application. But Home Loan Experts mortgage brokerage founder Otto Dargan told Canstar that the kind of benefits you’re receiving could make a big difference to whether or not you’d get a loan.

“The Age Pension and Family Tax Benefits are usually accepted as long as an applicant also has other income sources,” said Mr Dargan. “Disability and Carers payments are acceptable to some lenders, whereas JobSeeker payments are almost never accepted.”

But he said the number of lenders who may be willing to consider Centrelink payments as an income source drops “significantly” for types of income that are considered to be less stable, less reliable or too risky to lenders. This can mean, for example, that such benefits as JobSeeker payments will “almost never” be accepted by home loan lenders as a source of income.

What type of Centrelink payments might lenders accept as income?

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Source: Otto Dargan, founder of Home Loan Experts (31/07/2024).

Dargan also says that it could be hard for people on Centrelink payments to prove that they can afford home loan repayments if the cost went up over time, particularly because pensions don’t usually rise at the same time as interest rates do.

What home loans can you get on Centrelink?

It can be difficult to work out what home loans a Centrelink recipient can apply for, as lenders’ rules differ when it comes to what is, and what is not, considered income.

Mr Dargan told Canstar that a good place to start could be to speak directly with your current bank, or to a mortgage broker. Ask them if your income is acceptable for any home loans on the market and, if so, what your borrowing power might be.

“This will help you work out if you can qualify now or if you have to find a way to increase or change your income to get approved,” Mr Dargan said. “Often it isn’t as simple as just getting approval now, it’s about amending your situation so that you can meet their policy.”

You could then shop around for deals. He notes it’s also worth keeping an eye on interest rates.

“The higher interest rates go, the harder it is for people receiving Centrelink income,” he said. “This is because borrowing power is the main problem and higher rates cause people’s borrowing power to drop.”

If you’re wondering whether to seek the assistance of a mortgage broker or approach a bank or lender directly, there are advantages and disadvantages to both approaches that you may consider. Taking on a home loan is a major financial decision. You may want to consider suitably qualified financial advice. Be sure to read all important documentation carefully, such as the Target Market Determination (TMD) and the Product Disclosure Statement (PDS), before signing any contracts. You can typically find these documents, as well as any other terms and conditions, on the lender’s website. This may help to clarify any queries you may have with the potential lender.

What assistance is available for low-income home buyers?

There are various federal government programs available for Australians who may need assistance entering the housing market. This assistance could be instead of, or in addition to, a standard home loan.

For example, the First Home Guarantee allows eligible buyers to purchase a home with as little as a 5% deposit, subject to approval criteria. If you successfully apply for a place in this scheme, you will not need to pay Lenders Mortgage Insurance (LMI).

The Family Home Guarantee offers to guarantee the loans of single parents with dependents who want to build or buy a home with a deposit of 2% (subject to the individual’s ability to service a home loan). The applicant does not need to be a first home buyer, but will need to meet other approval criteria.

There are also a number of state and territory schemes, such as a range of grants and concessions for first home buyers and schemes that help public housing tenants to buy the property they are living in.

Do Centrelink home loans have higher interest rates?

Mr Dargan told Canstar that the home loan interest rates for borrowers who receive Centrelink benefits may not necessarily be higher than those offered to other borrowers. People whose income is partly made up of Centrelink benefits such as the Age Pension and Family Tax Benefits may find they can access the same rates as people who aren’t on Centrelink benefits.

He added that interest rates comparable with those offered to standard borrowers are not guaranteed, and that people who receive certain types of Centrelink benefits may find that they need to use specialist home loan lenders, who may charge higher interest rates.

It should also be noted that if you’re earning a lower income and relying on Centrelink payments to supplement part of your income, you may only have a relatively small deposit saved. If this is the case, then you may find home loan lenders will charge you LMI, which could add to the cost of your home loan.

LMI is intended to protect home loan lenders from financial loss in the event that the borrower cannot meet their repayments. Generally speaking, lenders will require LMI if a borrower has a deposit of less than 20% of the property’s value, although there are some exceptions to this as some lenders may be willing to waive it or offer a discount to eligible customers or those in particular professions. This will depend on the individual lender though.

What do you need to apply for a Centrelink home loan?

If you’re applying for a home loan while on Centrelink benefits, your bank or lender will likely ask to see proof of any payments you receive from Centrelink. This could potentially include your most recent Centrelink statement, or a Centrelink payment summary that shows your payments within a financial year, which can be downloaded from myGov.

If you’re applying for a home loan and child support payments form part of your income, you may also need to provide documents such as Family Court orders, a letter from your solicitor, and a letter from the Child Support arm of Services Australia showing the payments you receive.

In addition to these specific documents, you’re likely to need similar documentation to those applying for a standard home loan. This means that you will need to provide things like:

• 100 points of identification, typically in the form of a driver licence, Medicare card and/or passport.

• Proof of income, which will typically include two to three months’ worth of payslips on top of the proof of Centrelink payments referred to above.

• Proof of savings, typically in the form of two to three months’ worth of bank statements.

A lender will also want to know about any assets you own (such as a car), as well as any liabilities (like credit card debts, a car loan, HECS or HELP balances). Some lenders may ask to see other documents as well, such as tax returns and credit card statements.

Lenders may also request a list of your monthly household expenses, which can include things like bills, groceries, school fees and more general expenses like streaming services, in order to get an idea of your budget and spending.

Some tips to boost your chances of mortgage approval while receiving Centrelink payments

1. Work out how much you can afford to borrow

Before you apply, take time to calculate what you can realistically afford to borrow. This means factoring in your Centrelink income, any additional earnings, your regular expenses, and how much you could comfortably repay each month, even if interest rates were to rise by a few percentage points.
Applying within your budget can help reduce the chance of rejection and potentially avoid future financial stress.

2. Choose a suitable lender

Lenders have different policies when it comes to accepting Centrelink payments as income. Make sure you:

• Check eligibility criteria: Some lenders may only accept certain types of Centrelink payments, such as Family Tax Benefits, and may require additional income sources.

• Understand employment requirements: Many lenders only treat Centrelink income as secondary. With such lenders, you (or your co-applicant) may need to be employed or have another source of income to qualify.

• Avoid multiple loan applications: Submitting too many loan applications in a short period can affect your credit score. Each time you apply, it’s recorded on your credit report, and too many enquiries in a short span may signal financial stress to lenders.

Instead, take time to research your options or you may consider speaking with a mortgage broker. This can help you apply with lenders who are more likely to consider Centrelink benefits and improve your chances of approval.

Do home loan applications affect your credit score?

Yes, home loan applications can affect your credit score. It’s important to consider your financial position and choice of lender carefully before applying, as making multiple home loan applications and potentially having one decline can be harmful to your score.

Each time you apply for a credit product, your credit score is reduced by a small amount, and multiple applications for products such as home loans can lower your score. This makes it more difficult to be approved for a loan, as lenders may view you as a risky borrower. If you take out a home loan which ends up putting you under financial pressure, this may also negatively impact your score. This is because any missed loan repayments are recorded as a negative on your credit report. This report is used when calculating your credit score.

For these reasons, it’s important to carefully consider whether getting a home loan is right for your situation. It may be beneficial to seek professional financial advice when making this decision. If you’re concerned about your credit score, there are steps you can take to improve it, in order to potentially make yourself a more appealing prospect to home loan lenders.

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