You’ve come to a point in your life when you want to have your own place or own a property. There are lots of things to consider, of course, and you may have already thought of them. However, you may still be doubtful if you could afford to buy a house.
Is your income too low to own a home? It might not be. With the right discipline and know-how, you could apply for a low-income home loan.
How To Buy A Home On A Low Income
It’s not true that you won’t be granted a loan if you earn a low income. When you deal with a trusted mortgage broker in Sydney, you have peace of mind that they will help you with your situation. There’s actually no rule that people who earn less than a certain amount should be denied a loan. It does, however, mean lenders will look more closely at your application. On the upside, some lenders have designed products specifically tailored to low-income earners.
Here’s how you can apply for a mortgage on a low income.
Prove You’re Good For It
A standard home loan assessment involves the lender comparing the expected monthly repayments against disposable income. If you can’t comfortably repay the mortgage, your loan is likely to be rejected. So, to prove you can pay off the mortgage and increase your chances of the loan being accepted you could:
- Find a home asking a reasonable price
- Look for a loan with a low-interest rate
- Clear credit card debts
- Tighten your belt on things like takeout and shopping
- Show strong savings habits
- Declare everything
Sort Out Your Credit Score
A good credit score hugely increases your chances of being approved for a mortgage. To improve your credit score:
- Make consistent and timely credit card repayments
- Pay rent and bills on time
- Lower your credit card limit
- Pay off debts or consolidate them
- Don’t apply for too many loans and cards
Look For A Home You Can Afford
Look outside of capital cities and consider regional areas where house prices are more affordable.
Pay A Smaller Deposit
Try to build up a deposit of around 20%. This means you’ll be able to avoid paying LMI – lenders mortgage insurance. This is a cost added by the lender to protect themselves from losses. The cost of LMI usually varies depending on your house price. A smaller deposit means you will have to pay significant LMI, but it’s not a bad thing.
It takes time to save a significant deposit, and the cost of properties could increase in that time, which means missing out on the house you’ve always wanted. Keep in mind, though, that you may be hit with a slightly higher interest rate if you pay a lower deposit.
Use A Guarantor
If you apply for a mortgage with a guarantor, you may be able to get a 100% loan and avoid paying LMI. A guarantor is someone who agrees to take on the responsibility for repaying the loan if you can’t make payments. Typically, guarantors use their own property as a security for your loan, so it’s a big risk for them.
Use The First Homeowner’s Grant
A first homeowner’s grant provides a bonus (in cash) along with stamp duty concessions that differ based on where you live. But first home buyers can get significant bonuses this way, depending on the type of property they buy.
Even with a low income, you can still strive to own the home of your dreams!