Home loans for single parents

Are you a single parent looking for a home loan? Usually those who want a home loan have to have a deposit of at least 20% LVR in order to get a LMI waiver from lenders. But if you haven't got the deposit saved, you can expect to bear the additional cost of getting LMI and that can cost thousands of dollars extra.

However, there is a way for single parents to apply for a home loan with as little as a 2% deposit and still avoid LMI with the Family Home Guarantee (FHG). This guarantee supports eligible single parents with at least one dependent to buy a home and was announced as part of the 2021-2022 Federal Budget of the Australian Government.

Here's what you need to know as a single parent applying for home loans.

Can a single parent get a home loan?

Yes, you can. Your choices of lender may be limited, but there are incentives offered by the Australian Government for single parents seeking home loans.

Typically, before the new FHG, single parents have had trouble getting loans if they don't have a 20% deposit.

Home loan eligibility for single parents

To be eligible for a single parent home loan you must fulfill the following requirements in general.

• Be over 18 years old.
• Must have Australian citizenship.
• Earn a regular income, preferably from employment in a permanent capacity.
• Lenders would prefer if you have a stable job. (Getting a home loan while in casual employment is not an impossibility.)
• Your disposable income is an important criteria when applying for a home loan as a single parent. This simply means how much you have left each month from your earnings after you have paid your living and other expenses and paid off debts falling due monthly. Lenders will look to verify this figure to ensure you can manage to make your home loan repayments. Read our guide to HEM living expenses for more details.
• A good credit score with good credit history and no record of delays or payment defaults.

The exact criteria may vary depending on each lender.

What do lenders count as my income?

• Lenders prefer to see a stable income from a permanent job. It is easily proven with salary slips and bank statements.
• Income from routine casual or part time jobs may be counted, especially if you have been in that role for over six months.
• Parenting related receipts. Some lenders accept cash inflows from maintenance, child support, and other parenting-related payments when assessing the income of single parents. However, you may need to show proof that you receive these regularly and that they will continue over the long term.
• Centrelink payments. Single parents get various types of support from Centrelink, but lenders only consider some of these when assessing whether you are eligible for a home loan.

More about Centrelink payments

Some lenders may accept these Centrelink benefits as part of your income:

• Family Tax Benefits Parts A and B
• Large Family Supplement is also an extension of the Family Tax Benefit

Be ready to face some strict criteria if you are counting on Centrelink payments to qualify for a home loan. Lenders would look at:

• The age of your child/children. You are better off if they are younger, less than 11 years old.
• Your entire Centrelink statement.

Some benefits from Centrelink are not accepted due to their temporary or highly specific nature such as:

• Rent assistance
• Pharmaceutical allowance
• Parenting payments

You have a better chance of getting a home loan approved if you have a primary source of income that is supplemented by Centrelink payments.

Be ready to pay extra fees to the lender for considering the Centrelink payments as your secondary income source.

Do single parents get LMI waivers?

It all depends on your financial situation, how much you have saved for a deposit, and whether you qualify for the FHG.

In general, when buying property you are required to pay LMI if the deposit is less than 20% LVR. LMI is meant to protect the lender against the possibility of you defaulting on the loan and can increase the cost of a loan by thousands of dollars.

You may still get a LMI waiver from lenders in these instances:

• If you have saved for a home loan deposit.
• If you have a guarantor to back your home loan application.
• If you qualify for the Family Home Guarantee (FHG).

But other than that, chances are slim that lenders would waive LMI because you may be in a higher risk category as a single parent.

Select lenders may offer LMI waivers on home loans for single parents in the following instances:

• If you are buying your first home, applying with a guarantor, and therefore qualify to borrow up to 105% without paying LMI.
• When you are making a DHA property investment. The assured rental income you get from it reduces your lender's risk. But this does not apply to your home loan.
• Some insurers offer 25% to 33% discount on LMI premiums for first home buyers by special arrangement.

Considerations

Make your home loan application strong

Have all the documentation, including proof of identity, your payslips, and bank statements, to speed up the approval process. This helps increase your chances of acceptance and shows lenders you are a methodical person.

Rejections from multiple lenders will show up on your credit history and negatively impact your credit score. Therefore, do your research and get all the advice you can before applying.

Changes in Fair Work Act workplace entitlements

This is important if you are in casual employment and may have trouble getting a home loan application approved. The Fair Work Act 2009 (FW Act) changes to the workplace entitlements and obligations for casual employees come into effect on 27 March 2021. If you work for a business with more than 15 employees, there is now a path to permanent employment (either full time or part time). Your employer must give you the Casual Employment Information Statement (the CEIS) which can be proof to show lenders about your employment stability and prospects. Check out what changed and what you are entitled to.

Apply using a broker

You can apply directly with the bank or apply with the help of a broker (more about this here). An experienced mortgage broker who understands your unique circumstances can help you through the process and improve your chances of being approved. Mortgage brokers have access to deals from many lenders, don’t cost you anything, and only get paid when your home loan is approved.