How to Get a Loan on a Low Income

Tony Xia

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The property boom in Australia has seen the median house price in Australia’s capital cities skyrocket to nearly $1 million, which means that, for prospective homeowners, a 20% deposit on a mortgage could be anywhere between $180,000 and $200,000 – no small sum!

For those on a low income, this can seem an insurmountable challenge when it comes to buying their first home.

Despite these challenges, entering the real estate market remains an attainable goal for those on a lower income. With strategic budgeting and some savvy financial planning, first-time home buyers can save up enough money to put down the necessary deposit and secure their dream home.

Government benefits are also available to provide financial support to those who need it most.

So, here’s how you can get one step closer to securing a home loan – even when on a low income.

Why Do Low-Income Borrowers Face Greater Challenges Getting a Home Loan?

Low-income borrowers typically face more significant challenges in getting a home loan than those with higher incomes, as creditors are more likely to scrutinise the affordability of the loan or mortgage. So, it’s not necessarily about your income but your capacity to service the loan according to the lender’s assessment criteria.

For example, with the recent changes by the Australian Prudential Regulation Authority (APRA) in 2021 increasing the minimum interest rate buffer from 2.5% to 3%, lenders must calculate a borrower’s ability to repay the loan with an interest rate that is 3% higher than the loan product’s rate.

And if your borrowing power is already low, the added buffer can make your ability to service a loan more difficult.

But the key takeaway here is that even if you have a low income, you can still get approved for a home loan as long as you demonstrate your capacity to repay it.

4 Tips to Secure Loans for Low-Income Earners

Here are ways you, as a low-income earner, can still secure a home loan.

1. Consider a Smaller Deposit

Most people recommend paying a 20% deposit on a property to avoid Lenders’ Mortgage Insurance (LMI) – an insurance policy that protects the lender if you default on your mortgage.

But there is another side of the coin that you may have yet to consider: paying LMI can also be a good option for low-income earners who can’t save a 20% deposit.

Although it’ll be an added expense, it can potentially help you secure a mortgage with a smaller down payment, which may make it easier for you to afford the property you want.

It’s worth speaking to a mortgage broker to see your options to pay a smaller deposit.

2. Find a Guarantor

Guarantors offer a unique opportunity to those with low income who might not otherwise qualify for home loans. Through the help of family or friends, they can provide added security and an increased chance that lenders will agree to give you a loan without needing a 20% deposit or LMI.

Essentially, the guarantor assumes responsibility for any balance remaining on the home loan if you fail to keep up with your repayments, however this is generally covering the guaranteed portion of the debt only. And because the lender will have some form of collateral, they are more comfortable in providing a loan with minimal or no deposit.

You may be interested in reading our Guide to Guarantor Loan Requirements in Australia.

3. Apply for Government Assistance

The federal government offers home loan assistance through several programs, including:

The First Home Guarantee allows a select group of first-time homebuyers to purchase or construct a home with just a 5% deposit. The government will act as the loan guarantor, enabling you to obtain a house with a small deposit while avoiding the expense of LMI.
The Family Home Guarantee enables eligible single-parent borrowers to buy a home with a 2% deposit and avoid LMI.
The Regional First Home-Buyer Guarantee, which aims to support the growth of regional areas and make it easier for people to buy a home in these areas, allows individuals to purchase or build a new home in regional Australia with a 5% deposit and no LMI costs.

In addition to federal government programs, state governments in Australia also offer various first-home buyer grants and stamp duty concessions to help individuals and families purchase their first homes.

The NSW government has also recently introduced the First-Home Buyer Choice Scheme, which allows first-time home buyers to choose between paying stamp duty upfront or in smaller annual payments.

4. Contact a Mortgage Broker for a Low Income Loan

A mortgage broker can be a great asset when finding the right home loan product – especially as a low-income earner. That’s because they have access to multiple lenders – which allows them to compare different interest rates, loan terms, and other features of various home loan products.

And with their market knowledge, they can recommend products based on your unique financial situation so you can secure a home loan that aligns with your goals.

They’re also well-versed in the documentation requirements of different lenders, so they can ensure everything is accurate and meets all lender criteria.

Here at The Mortgage Agency, we understand that many low-income earners may feel discouraged when obtaining a home loan. That’s why we are committed to providing a service tailored to meet each client’s specific needs, regardless of their income level.

So, if you want to learn more about how we can help you secure a home loan, get in touch today.

Key Takeaways

Getting a loan on a low income doesn’t have to be impossible. There are ways to secure a loan with the right guidance and resources, even with limited means. For example, the government offers certain assistance programs that can help to prove that you’re able to service the loan, or you could seek out a guarantor loan for additional support.

If you find yourself on a low-income needing assistance with loans and mortgages, contact The Mortgage Agency for more information and advice on navigating your situation.

While it might not always be easy, it is possible to find a home loan. By taking all the necessary precautions, such as seeking advice from experts and conducting thorough research into different types of loans available, you can successfully secure the finance you need.

About Tony Xia

Having worked in the customer service and finance industry since 2011, our Director Tony Xia and his team’s highest priority is to cultivate a long-lasting relationship with clients based on trust and respect at The Mortgage Agency.