How to get a home loan when you’re single

Getting approved for a home loan when you’re single may be more difficult but it’s not impossible. Here are our tips for securing a mortgage and getting on the property ladder even when there’s just one income coming in.

Times have changed

Did you know that just over 30 years ago single women needed a male guarantor in order to get a home loan? Thankfully times have changed.

Data from the Australian Bureau of Statistics, shows that women currently outnumber men when it comes to getting on the property ladder early and taking out a mortgage on their own. Women were more likely than men to live in a home they owned or were buying, and this was particularly true for young women.

Woman on tablet

Around 26% of women aged 15 to 35 years had a mortgage, compared to just 20% of men.

Be realistic when it comes to home loan approval

When a lender is assessing your application, the first thing they’ll want to know is that you’ll be able to meet the home loan repayments. That means looking at your income and expenses – or what comes in to your bank account compared to what leaves it.

Logically, having just one income means that you’re likely to be able to borrow less money than if you were part of a couple with two incomes. For that reason, you should begin by being realistic about how much you’ll be able to borrow and refine your property search in line with this.

That said, it may not necessarily mean having to compromise too much. Even in the most expensive Australian capital cities and towns, studios and one-bedroom apartments are usually well below the average price of property as a whole. If there’s only one of you, that may be all the space you need.

Take control of your finances and save money for your home loan

A lender considering your home loan application will want to know that you have the financial discipline to take on a long-term financial commitment such as a mortgage. Generally, that means having a proven track record of savings.

More than ever, when they’re looking at your expense column, they’ll also want to know that you’re spending your money in a responsible way.

That means you should be able to show at least six months of regular savings you can use towards your home loan deposit. It also means that you should make sure you’re not overspending – particularly on lifestyle expenses.

And, perhaps more than anything, it means paying down and even closing credit cards you’re not using or no longer need. After all, when a lender assesses your borrowing capacity they’ll treat the limit on each credit card you own as a debt you need to repay, even if you owe nothing on it.

Take advantage of being a first home buyer

If you’ve never owned a home before – or even if you’ve only ever owned an investment property and are now looking to buy as an owner/occupier – chances are you may be entitled to some first home owner benefits. So make sure you use these to your advantage, especially when it comes to saving for your home loan.

First home owner benefits differ between states, however they generally take two forms. The first is as a reduction in the amount of stamp duty you may need to pay. As stamp duty – or transfer duty – is easily the most expensive upfront cost when it comes to buying a home, this can help you get onto the property ladder without having to save as much as you otherwise would.

The second, is the first home owner grant – a lump sum contribution towards the cost of your home. In most jurisdictions this payment is restricted to new homes under a certain price threshold.

Consider a guarantor

A home loan guarantor is someone who uses their property as security for your loan. Lenders may let you borrow more money when you have a guarantor because if you default and can’t pay your loan, they have the option of selling that property as well as yours to recoup their loss.

These days, a guarantor doesn’t always have to guarantee the full amount of your loan. Many lenders will let them provide a partial guarantee – for instance – up to 20 per cent of the price of the home – so that you meet the minimum loan-to-value (LVR) requirements for avoiding lenders mortgage insurance (LMI).

Because you will be closely bound to any guarantor financially, lenders will only usually allow immediate family members, such as parents, to act in the capacity of guarantor.

Anyone considering going guarantor for a loan should also make sure they receive their own independent legal advice.

Buy with someone else

If you feel as though saving money for a home loan is an impossible task, why not ask your family or friends to pool resources and buy with you?  Increasingly, many buyers – especially first home buyers – are choosing this option to make it easier to save a deposit while increasing their overall borrowing capacity.

If you do go down this path, make sure that each person who will be on the contract for sale receives their own independent legal advice before signing. You should also draw up a contract with each other that stipulates how long you want to hold the property for and what happens, for instance, if someone wants to sell.

Turn your property into an income stream

Finally, why not increase both your income and your borrowing capacity by turning your property into another income stream?

For instance, consider renting out any spare rooms and putting that extra money into the mortgage. Alternatively, you could choose to “rentvest”, by renting in the area you want to live and buying a property somewhere else that you rent out for income.

If you do take this approach, just be careful – it may mean you’re no longer entitled to first home owner benefits you otherwise may be.

And finally…

While getting a home loan as a single person may be more difficult than if you were buying as part of a couple, it’s not impossible. With the right approach there’s no reason you shouldn’t secure the finance you need and get your foot onto the property ladder.