Two incomes are always better than one, as far as a bank is concerned. It’s not always going to work out that way though. There are so many families that either have one income, or singles who want to purchase a house on their own.
There are a few extra things, however, you need to think about if you are purchasing your home on a solo income, but rest assured that it has been done thousands of times before, so yes, it can be done!
Here are 7 tips for buying your own home, if you’re single or on one income.
1. Get a mortgage broker
Regardless of whether you are single or not, getting an independent mortgage broker to do the ground work for you is a must. They will know the lenders who will work for your situation as well as the specific requirements that you may need to meet.
2. Reduce your credit card limit
Even if your credit card has never been used, the credit limit will go against your application for a loan. You may be keeping a $10,000 limit on your credit card ‘just in case’, but the bank will assess you as though you are $10,000 in debt. Consider reducing your credit card limit to just $2,000 or $3,000 to make you more appealing to lenders.
“You may be keeping a $10,000 limit on your credit card ‘just in case’, but the bank will assess you as though you are $10,000 in debt”
3. The bigger the better
Deposits, that is. Regardless of whether you are a 1 income family or more, the bigger the deposit, the easier it is to get credit. A 20% deposit is the ultimate aim, because it also means that you skip out on paying mortgage insurance, but it isn’t always achievable for everyone within the time frame they have set themselves. The closer you are to that golden 20% the better, so put your head down and bum up and squirrel away as much as you can.
4. Only borrow what you can comfortably pay back
Lenders will tell you the maximum amount you can borrow, it doesn’t mean you actually need to borrow that much. Give yourself a little wiggle room, and do the figures yourself. That means that you need to look at your budget, and how much you can comfortably pay off without forgoing your other necessary expenses. If you can’t afford your electricity bill with the new loan, then you have borrowed too much.
5. Protect the income that you have
One of the things that the mortgage broker/bank will ask for, is information regarding the insurance that you currently have in place. As you are reliant on one income only, it is very important to get income protection insurance to ensure that should something happen to you, you can continue to service the loan. You are able to hold this type of insurance within your superannuation fund, to ensure it is not too much of a burden on your cash flow.
“If you can’t afford your electricity bill with the new loan, then you have borrowed too much”
6. Get a guarantor
This option isn’t available to everyone, but sometimes having someone vouch for you will help you get a loan across the line. Don’t expect friends and family to be running to your aide however. Going guarantor for someone is a big deal. Understand that what you are asking has serious repercussions for your guarantor, so make sure you don’t take it for granted.
7. Longevity is the key to success
As far as lenders are concerned, the longer that you have been in your job, the better. If you have been in and out of jobs, then maybe wait until you have locked down your dream job, and have been working there for at least 6 months.
“Going guarantor for someone is a big deal. Understand that what you are asking has serious repercussions … ”
Don’t let anyone tell you that buying a home on one income can’t be done, because it can. Preparation is the key to success on this one though, so work through the above 7 tips, and you’ll put yourself in the best possible position to get you into your home sooner.
Cara Brett is the Director and Senior Financial Adviser at Bounce Financial. Having worked in the financial services industry since 2003, she saw an opportunity to work with the young professionals and the movers and shakers in Brisbane, and so Bounce was born.