Buying property solo: What you need to know

When it comes to applying for a home loan, your borrowing power is the foundation of a successful bid. One of the main ways to increase your borrowing power is to demonstrate that your total income (including that of your partner, if you’re buying together) is enough to make repayments. 

But what if you’re single and only raking in one income? 

Sure, having two incomes is no guarantee of a successful home loan application (we’ll go over the details later), but it certainly helps impress the bank. 

So, if you’re single and ready to jingle your very own set of house keys, know that your dreams of home ownership aren’t out of the question, no matter your Facebook relationship status. It’s all about ensuring the lender that you’re good with your money.

If you’re on a single-income, then you’ll likely have less borrowing power than a couple on two incomes. This means the bank probably won’t lend you as much. 

That’s why you should be realistic when it comes to looking at potential properties. 

For example, you’d have more luck securing a loan for a studio or one bedroom apartment than a three bedroom house if you’re on a single-income. Besides, if you’re single chances are you’ll need less space than a couple or family. 

Reevaluating your expectations so that they match your borrowing power is a good way to narrow down your property search. But how do you work out your borrowing power? 

Get pre-approval for your home loan

Home loan pre-approval is an important part of the home loan process. 

Pre-approval is essentially a way for lenders to gauge what size loan you could comfortably afford to repay by establishing what your financial position is. 

While not a guarantee of your borrowing power (or a lender’s unconditional willingness to loan you the money), it’s a great tool to have in your arsenal come the day when you’d like to make an offer on a home.

However, your income alone won’t determine whether or not the bank approves your home loan request. It also comes down to how you spend your money.

Before a lender agrees to lend you a large amount of money for your home, they want to see that you’re financially disciplined, meaning that you can demonstrate a proven track-record of savings. Generally, this is six months of regular savings, or enough for a house deposit. 

This is both to prove that you’re able to save and that you can afford to make loan repayments in the future.

Demonstrating financial discipline is a great way to show the bank that you’re worth the lending risk, mitigating any doubts that might stem from not having a second income to fall back on when it comes time to make repayments. 

They also want to see how you spend your money, namely, if you’re responsible with it. Part of this is if you spend a disproportionate amount of your money on lifestyle expenses. The other part (perhaps the more pertinent one) is your amount of debt.

For starters, having a good credit score displays that you're a trustworthy borrower who can pay off their debts successfully. 

Having proof that you can pay off credit cards, personal loans, and other debts on time will demonstrate that you’re financially responsible and stable, giving the bank a reason to lower their risk-assessment of you. 

One thing which people who have credit cards should definitely take into account, is that lenders will take your credit card limit as active debt. It doesn’t even matter if you haven’t spent the full amount of your limit. 

So, if you’ve got a $5,000 limit on your card, then the banks will see you as having $5,000 in debt. Factor in multiple credit cards with high-limits, and your lenders will scrutinise your financial position. Therefore, lowering your credit card limits can effectively reduce your perceived debt and make it easier to get a home loan.

The Australian government provides schemes which you might be able to take advantage of if you’re a first home buyer.  

First Home Owners Grant

The First Home Owners Grant is a one-off lump sum granted to Australian first home buyers. The rules differ between states, but you can use it to buy a house, townhouse, apartment, unit or similar property, so long as it meets the eligibility criteria. 

New Home Guarantee

The New Home Guarantee is a government initiative that aims to provide support for first home buyers. Under this scheme, the government will guarantee part of your home loan from a participating lender, enabling you to buy your first home with as little as a 5% deposit. 

First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSSS) is a government initiative that lets you save money for your first home inside your super fund account. As superannuation is taxed differently to regular interest, you’ll theoretically be able to save faster for your home loan deposit. 

You are only allowed to contribute a maximum of $15,000 each financial year under the FHSSS. And at the time of writing, you can only withdraw a maximum of $30,000 to put towards your deposit. However, from July 1 2022, that will increase to $50,000. 

Discounted or waived stamp duty

Depending on what state you’re in and the value of your property, you might be able to get a concession or waiver on your stamp duty expenses, if you’re a first home buyer. 

Lender benefits for first home buyers

Some banks provide incentives to take out a home loan with them, like Lenders Mortgage Insurance (LMI) waivers for eligible applicants, or cash refinance bonuses. That’s why it’s good to do your research and compare home loans, so you can find the latest deals and offers.

Just because you’re single, doesn’t mean you have to go it alone. Having a guarantor or a co-applicant are two ways you can strengthen your home loan application. 

Guarantors

A guarantor is someone who uses their own property as security for part, or all, of your loan. If you default on your loan, meaning you can’t pay it off, your lender has the option to sell your guarantor’s property, as well as yours, to recoup their losses. 

Guarantors don’t even have to cover the full amount of your loan, meaning that they could provide a guarantee on 20% of your property’s price, eliminating the need to take out LMI.  

However, your guarantor must be someone close to you, due to the riskiness of the situation for all parties involved. That’s why lenders will only allow immediate family members (like parents) to act as guarantors. 

Your guarantor should also get independent legal advice, so that they have a clear idea of what they’re signing up for. 

Co-applicants

You also have the option to buy with another person, like a family member or friend. Having a co-applicant, known as co-buying, means that you'll be able to save for a deposit quicker and benefit from having two income streams. That increases not only the scope of your property search, but also the borrowing power you wield. 

If you’re taking this route however, you should ensure that you draw up a contract with the person you’re buying with that outlines the process for what happens if one party wants to sell. Both parties are best off getting legal advice with this one, as you want it to go smoothly long-term.