How to get a home loan as a single parent

Single parent with new home

Purchasing property with a single income can feel challenging, but when you’re a single parent it may feel more like an uphill battle. However, the dream of home ownership is still achievable thanks to Australian government schemes, grants and concessions that may help you get a foot on the property ladder.

The property market is currently an intimidating prospect for single parents and first time buyers alike. The latest CoreLogic Home Value Index results show that dwelling values were up 1% across the nation for December. For Sydney, the median dwelling value has ballooned by a quarter in just a year, growing by 25.3% to $1,098,412.

And the greatest growth in value annually was recorded in Hobart, rising 28.1% annually to $694,261. While value appreciation has slowed, the median prices of dwellings in capital cities are still at eye-watering levels – especially for a would-be borrower with one income.

If taking out a home loan is at the top of your New Year’s Resolutions list for 2022, you’ll want to arm yourself with the best information possible to boost your chances of approval.

Thankfully, there are several options available to single parents that may help them to gain home loan approval.

Single parent home buyer schemes

There are a number of schemes and concessions available that may assist some eligible single parents in gaining home loan approval. While some may differ per state and territory, it’s worth familiarising yourself with these programs if you’re hoping to boost your chances of loan approval in 2022.

 

Family Home Guarantee

Announced in the federal budget last year, the Family Home Guarantee scheme (FHG) is targeted directly to single parents, regardless of whether the applicant is a first home buyer or previous homeowner.

The FHG is capped at an income of $125,000, and 10,000 places will be available over four financial years from 1 July 2021 – 30 June 2025. Applicants must be Australian citizens or permanent residents. The FHG may be used for

  • An existing house, townhouse or apartment
  • House and land package
  • Land and separate contract to build a new home
  • Off-the-plan apartment or townhouse

It is designed to assist applicants with a deposit as small as 2% to gain loan approval and avoid paying costly lender’s mortgage insurance (LMI). LMI is typically required from borrowers with deposits less than 20% and can climb into the tens of thousands of dollars range, depending on the property value.

Under this scheme, eligible applicants will see their loan guaranteed by the National Housing Finance and Investment Corporation (NHFIC), so that single parents can purchase property without needing such a large deposit.

For example, based on the median dwelling price in Sydney listed above, a single parent would only need to save up a deposit of $21,968. This is considerably more achievable and realistic for someone with one income to save for, compared to a 20% deposit of $219,682, regardless of your financial situation or number of dependent children.

Keep in mind that by saving a smaller deposit, your loan-to-value ratio (LVR) will be higher. A typical home loan will have LVR requirements of between 80-90%, but with a 2% deposit, your LVR will be 98%.

This may mean that your loan repayments are higher than if you were to save a bigger deposit, as you’ll be repaying a larger loan amount over the same loan term (typically 25-30 years). Further, if you want to refinance the mortgage after a few years, you may find that your LVR is higher than the new lenders’ eligibility criteria. Meaning, you may be unable to gain approval for a new mortgage until you’ve repaid more of the loan.

 

First home buyer grants and schemes

If you’re a single parent and a first home buyer, you may be able to take advantage of one of a number of government schemes targeted to help first-timer’s take a step on the property ladder.

 

  1. First Home Super Saver Scheme (FHSSS)

The FHSSS allows eligible applicants to use their superannuation fund to assist them in saving up for a home deposit. This may be a competitive option for would-be borrowers struggling to see significant returns from savings accounts or term deposits in the current low-interest-rate era.

First home buyers make extra contributions into the super fund and can then withdraw up to $30,000 for the purpose of purchasing property. From 1 July 2022 however, this scheme will be increased to $50,000. You may only request a release under the FHSSS once. And you have 12 months from the date you request release of funds to have a signed contract to purchase or construct a home.

 

  1. First Home Loan Deposit Scheme (FHLDS)

The original version of the Family Home Guarantee, the FHLDS allows eligible first home buyers to purchase property with a deposit as little as 5%. Under this scheme, the NHFIC acts as a guarantor for the home loan of the eligible first home buyer up to 15% of the property value. Between 1 July 2021 – 30 June 2022, 10,000 FHLDS places will be available. Income caps of $125,000 per annum are also in place for single applicants.

Find out more about the FHLDS here.

 

  1. First Home Owner Grant

The First Home Owner Grant (FHOG), first introduced on 1 July 2000, provides a one-off grant to eligible first home buyer applicants. The value of the grant will depend on the state or territory the property is located in, and the property value itself.

 

Stamp duty concessions and exemptions

Another significant barrier for single parents looking to purchase property can be the cost of stamp duty. It is one of the biggest upfront costs of buying a home outside of the deposit, so finding ways to reduce this cost, or erase it altogether, can be the difference in an applicant purchasing property or not.

Stamp duty concessions and exemptions may be available to you if you are a first home buyer. These concessions and exemptions differ depending on the state or territory where you are purchasing property and the property price itself (price caps may occur). This can range from shaving thousands of dollars off your stamp duty bill to paying $0.

For more information on what concessions or exemptions you may qualify for, please view the applicable State/Territory Revenue Website:

Getting a home loan with a small deposit

If you’ve managed to save up a small deposit, but you’re not necessarily sure you want to use a government scheme, you may be curious about alternatives for gaining loan approval. In this instance, it may be worth looking at lenders that approve borrowers with a deposit less than 20%.

Reduce Home Loans aims to support single parents, as well as other borrowers with smaller deposits, through its competitive Economizer 95 Home Loan. Borrowers may gain loan approval with an LVR between 90-95%, meaning you may only need to save a deposit of 5% to nab your ideal property.

For more information about the Economizer 95 Home Loan, or to discover which home loan options may suit your financial situation, please reach out to one of Reduce Home Loans experts today on 1300 733 823.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.