How To Get A Home Loan With A Single Income

9 June 2017
Getting a home loan is a daunting prospect these days for anyone, but what if you’re single or in a one-income household?

Housing affordability is more of an issue than ever for singles or single-income households in particular, being two groups with less borrowing power and less assets than a couple would. That being said, here’s our advice on how to best go about attaining a single income home loan.

Being approved for a loan is dependent on a number of factors including your income, assets, and credit score or credit history. But unless you’re a doctor or lawyer, offering you a single income home loan probably won’t be particularly alluring to a bank or financial institution based on your income alone.

This means you’ll need to be golden when it comes to your assets and credit rating if you want to nab that single income home loan. So with that in mind, here are some tips on how to get a single income home loan. Good luck!

How to get a single income home loan

Getting a single income home loan is a lot easier – although it’s never guaranteed – if you have the following things lined up:

  • A large deposit
  • A smaller loan
  • Home loan pre-approval
  • A loan guarantor

Canstar explains each of these in more detail below.

1. Single income home loan? Start with the biggest deposit possible

It may sound like we’re stating the obvious here, but it’s crucial that you save the largest amount of money possible before setting your sights on taking out a single income home loan. You’ll want to have at least 20% of your maximum borrowing power (more on borrowing power below) saved up.

How To Get A Home Loan With A Single Income

If you have less than a 20% deposit, you’ll have to pay for Lender’s Mortgage Insurance (LMI), which applies to loans with a loan-to-value ratio (LVR) of more than 80%.

The other benefit of a larger deposit is that you may be able to negotiate a lower interest rate for your single income home loan, because you pose a lower investment risk to your bank of choice.

Differences in interest rates may look small on paper, but our Home Loan Repayments Calculator shows that it adds up over time.

For example, if you were making monthly mortgage payments, you’d pay $101,663 in interest if your interest rate was 3.54% p.a., but $111,426 if your rate was 3.84% p.a.. That’s only a 0.30% difference in interest rate but it means paying roughly $10,000 more over the life of your loan, which isn’t exactly small change!

There’s more here on the ins and outs of how large a home loan deposit you need, but the long and the short of it is that deposits is one case where it really is “the bigger, the better”!

2. Consider a smaller loan amount

It might sound disheartening and we’re sorry to say it, but a single income may mean less income overall, which in turn means less borrowing power. It’s all about being able to prove to the bank what your single income home loan serviceability factor is – showing that you can afford to repay the loan of your choice while still putting food on the table and fuel in your car.

In general, your chances of being approved for a loan only get better as the risk you pose in terms of the amount of money the bank is lending you decreases.

Recent research from ME Bank showed that the national average loan amount for a single income home loan is $355,000.

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.

Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning

Get an estimate of your borrowing power based on your income and expenses:

A lower loan amount is not a bad thing by any means – it can mean you make smaller monthly repayments. This is nothing to sneeze at in terms of your overall budget for a single income home loan. Find out what the monthly repayments might cost for loans of different sizes:

Whether this means looking at ideally sized home in cheaper locations, or looking at smaller homes in your location of choice, the bottom line is that a compromise may need to be made somewhere.

If you’re looking for suggestions when it comes to location, here are our home-buying suburb guides for:

3. Get pre-approved for your single income home loan

When it comes to taking out a single income home loan, you’ll have a much easier time of it if you know what your price range is before you start house-hunting. Don’t waste time finding houses you like, only to be told they’re out of your price range – get the bank’s tick of approval first.

That’s where pre-approval comes in handy! You can find our full guide to getting home loan pre-approval here, but here’s a quick summary…

Pre-approval is when your lender of choice assesses your financial situation in advance of you actually applying for a home loan, and conditionally approves you to borrow up to a certain amount. Pre-approval will usually be valid for 3-6 months, making it that much easier to get the ball rolling you’re your home buying offer is accepted.

A Single Income

Don’t forget to compare home loans before you go hunting for home loan pre-approval! There’s no point applying for pre-approval on a loan that you later decide would be a dreadful loan for your situation.

Canstar can help you there – we compare thousands of different home loans from lenders across Australia:

4. Consider finding a guarantor for your single income home loan

Another thing that could convince a lender that your single income home loan is a good idea is if you have a guarantor. A guarantor is when someone agrees to “guarantee” that if you fail to repay your loan, they will repay it – so it’s a big ask.

Applying to the Bank of Mum and Dad or getting a guarantor from another source can pay off in a big way if they say yes, because it can decrease the risk you pose to the lender, and you may avoid paying LMI this way. Research shows more and more parents are acting as guarantor so that their kids can get into the property market.

Before you crack the big question, make sure that your lender of choice allows guarantor home loans, as you can’t get a guarantor single income home loan everywhere. Canstar’s September 2016 home loans research found 72% of lenders allow a parent to go guarantor on their child’s single income home loan.

Lenders always judge home loan applications on a case-by-case basis, but the tips above should put you in better standing when it comes to applying for a single income home loan.