As a single parent, you may find it challenging to enter the property market and buy your own home on your single income.
However, the good news is that the Australian Government has provided incentives through single-parent home loan programmes. Eligible single parents meeting the criteria can access the housing market with as low as a 2% deposit.
This article will help you get up to speed on the different home loan programmes if you’re a single parent with a homeownership dream.
Is it Harder to Get a Mortgage as a Single Parent?
Yes, sometimes it could be more challenging to secure a mortgage. Your lender choices may be limited as some financial institutions do not consider parenting-related payments like child support as a form of income.
Another significant roadblock most single parents run into when buying a family home is Lenders’ Mortgage Insurance (LMI). Usually, home buyers have to show a deposit of at least 20% Loan to Value Ratio (LVR).
If you don’t have a sufficient deposit saved, in all probability, you’ll have to incur the extra cost of getting LMI, which can run into thousands of dollars.
When you consider this, alongside other factors such as age, job stability, borrowing power and earning capacity, there is no doubt that securing a home loan as a single parent can be difficult.
How Do Lenders Treat Single Parent Applicants?
Although eligibility criteria vary across lenders, each is mainly concerned about your capacity to make timely home loan repayments. Moreover, they are bound by a code to lend responsibly and minimise the lender’s risk.
When assessing your single-parent home loan application, like most lenders, your credit provider will run the following checks:
1. Employment Information and Verification
You will have to address lender queries and provide proof of income, salary slips, bank statements, etc., in your loan application. This helps lenders understand your borrowing power vis-a-vis the loan amount and repayment capacity.
While lenders prefer applicants to have a stable job, it doesn’t mean you won’t get a home loan based on your casual employment. Your income from your contract job or casual or part-time job may be considered, especially if you have been in that role for more than six months. Your credit provider may also want to verify your income and employment status by contacting your employer.
2. Disposable Income
Lenders will also want to know your disposable income, i.e., the amount you have left each month from your earnings after paying your living expenses and other debts that are due monthly.
Likewise, they’ll also evaluate if you have a good credit history. These criteria are essential for lenders when considering single-parent home loans as it enables them to assess your capability for home loan repayments.
3. Child Support Payments
Some lenders may also consider your cash inflows from maintenance, child support, Centrelink and other parenting-related payments when reviewing your sources of single-parent income.
Be prepared with proof of receipt to show the regularity of this income and that you will continue to receive them over the long term.
When assessing your application, lenders also look into the LMI component, as the lender’s risk is considered higher when financing single parents. You may get an LMI waiver if you have saved enough for a home loan deposit, have a guarantor backing your loan application, or if you qualify for a low deposit scheme like the Home Guarantee scheme.
Most single parents have one straightforward question: “how much can a single parent borrow?” because it helps understand how much home you can afford. Ultimately, the answer to this question comes down to your financial situation, i.e. your deposit and the government’s different home loan scheme features, which can work in your favour.
What Help is Available for Single Parents?
Fortunately, if you’re an Australian citizen and a single parent, there a suitable schemes to help you purchase your own home without falling into a debt trap.
“Aside from general qualifying factors, the government has announced initiatives to support single parents scale the property ladder. While there is no particular product within home loans for single parents, these schemes can help single parents purchase their own family home sooner,” says Graeme John, Head of Growth at Joust.
Family Home Guarantee Scheme (FHG)
The Family Home Guarantee Scheme (FHG) is an Australian Government initiative administered by the National Housing Finance and Investment Corporation (NHFIC).
The scheme targets eligible single parents (natural or adoptive) with at least one dependent child looking to buy a family home (not investment property). With as little as a 2% deposit, you can purchase a home without paying costly LMI.
Per the scheme, NHFIC will guarantee part of the home loan from a participating lender. Any home loan guarantee is for up to 18% of the property’s value, as assessed by the participating lender. This guarantee is neither a cash payment nor a home loan deposit.
Among other critical eligibility requirements, you must prove that you are legally responsible (singly or jointly) for the day-to-day care and development of your dependent child in your care.
Other Government Assistance For Single Parents
In addition to the Family Home Guarantee, as a single parent you may be eligible for other government grants and schemes (especially as a first home buyer.
- First Home Guarantee (FHBG): If you qualify, you can purchase your owner-occupier home with as low as a 5% deposit without paying Lender’s Mortgage Insurance. Any home loan guarantee is for up to 15% of your property value (as assessed by your participating lender). This guarantee isn’t a cash payment or a deposit for a home loan. You can apply if you’re a first home buyer or a previous owner who presently does not own a home.
- First Home Super Saver Scheme (FHSS): Under the scheme, you can save for your first home by making voluntary concessional (before-tax) and non-concessional (after-tax) contributions into your super fund. This scheme enables you to save faster by leveraging the concessional tax treatment of superannuation. Once you meet the eligibility requirements, you can apply to release your voluntary contributions and your associated earnings to support purchasing your first home.
- Regional Home Guarantee Scheme: Eligible homebuyers, including permanent residents and non-first home buyers and permanent residents, can either buy or construct their new home in regional areas, subject to enabling legislation. If eligible, the government will guarantee a part of your home loan. So, you’ll be able to buy your home sooner with a smaller deposit while avoiding costly Lender’s Mortgage Insurance.
- First Home Owner Grant (FHOG): Introduced on 1 July 2000, this nationwide scheme is a one-off grant payable to first home owners who meet all the eligibility criteria. It is funded by the states and territories and administered under their legislation.
Getting a Home Loan Based on Centrelink Payments
Being a single parent, other than the Family Home Guarantee Scheme, you may be eligible for parenting payment from Centrelink if you receive the following benefits:
- Family Tax Benefit (FTB): Multiple lenders accept Centrelink payments, such as FTB and its extension - Large Family Supplement - as part of your income if you present adequate proof. Nonetheless, lending criteria vary, and your lender may also factor in the age of your children when assessing your application. If you have a primary source of income and your children are under 11 years of age, you have better chances of getting approved.
- Childcare benefit: If you receive Childcare benefits, that could be another acceptable source of income when considering your home loan application. When applying for your loan, you will most likely be required to specify if your payments are through the Child Support Agency (CSA), if they’re court-ordered and have been regular over the last six months. Depending on your lender’s requirements, you may also need to provide supporting documents, including bank statements.
- Other Centrelink payments: Eligible single parents could also leverage Centrelink payments such as carer’s allowance, disability pension and war veteran’s and widow’s pensions to access home loans. Few lenders may accept Centrelink payments as the only source of income from single parents or if you’re on a war veteran pension, albeit at higher interest rates. Sometimes, your lender may charge you an extra fee for treating your Centrelink payment as an additional source of income.
Moreover, if your income is low and you rely exclusively on Centrelink payments to boost your income, you may have a relatively small deposit. In this case, some home loan lenders will make you pay LMI. This would substantially increase the overall cost of your home loan.
Tips for Home Loan Approval
Before entering into any home loan agreement, like all home buyers, you should clarify any doubts with your lender or mortgage broker about the implications of changing interest rates and house prices based on your financial situation and individual circumstances.
In addition, these helpful hints will give you the best chance of home loan approval:
Ensure a Good Credit Score
A healthy credit score is very advantageous when applying for a home loan.
Improve your score by paying your bills on time, sorting out outstanding dues, disputes (for example, your phone bills) and any other discrepancies.
Know Your Borrowing Power
Your lender or mortgage broker will assess your borrowing power to determine your ability to fund your loan repayments in future. They will typically consider your income, living expenses, debts, assets, deposit amount, and property value to assess your borrowing power.
Our Borrowing Power Calculator will help you understand how much you can borrow based on your current financial position. Applying for finance that matches your borrowing power improves your chances of getting approved for a home loan.
Whether you’re a single parent or otherwise, budgeting effectively is one of the most proven ways to advance toward your owner-occupier home goals. So rather than scurrying around later, start working out the details once you’ve decided to buy your home.
Have a clear idea about the type of home you want, location, property value, deposit, monthly repayment capacity, home loan deposit scheme you can access, etc.
Moreover, if the property values are higher in your preferred area, you may need to either revise your budgets, switch to a more affordable place, or hold up a bit until you save a bigger deposit.
Find the Perfect Loan
Navigating the home loan application process when applying for the Family Home Guarantee Scheme and other government assistance can be a bit challenging for some.
For this reason, finding the best home loan that suits your financial wants and needs is essential. As a single parent, you may find it harder to search through the home loan market to find the best lender that offers competitive and reasonable rates.
This is where Joust can help.
Joust Live Auction is a feature that brings lenders with competitive rates to your fingertips. Why search the market for the perfect lender and waste hours chasing dead ends? Our product is free of charge, simply requiring you to answer a few questions so we can connect you to a lender that meets your needs.
Can I Get a Home Loan on a Family Tax Benefit?
Ultimately, this would depend on your lender. While you can apply for a home loan, you’ll preferably need to have another primary source of income from employment. This is because most lenders may not approve you for a home loan if the Family Tax Benefit or other Centrelink benefits are your sole source of income.
You may have to go with a specialist lender if you receive Family Tax Benefits as your sole income. In all probability, your home loans would be the basic packages. This means that extra features such as an offset account, a credit card, etc., may not be offered.