JULY 01, 2021
What You Need to Know About Single Parent Home Loans
Saving for your first home can be a long and difficult process, particularly if you’re looking to buy on your own. Add in a child or children, and finding a way to put aside savings for a deposit on a single income can seem like an impossible task.
And with property prices continuing to skyrocket across the country, single parents may feel like they have no chance of ever owning their own home.
But if you’re keen to say goodbye to renting and enjoy the security of owning, there is hope thanks to a new government initiative which allows single parents to secure a home loan with as little as a 2 per cent deposit.
As part of the 2021-2022 Federal Budget, the Australian Government announced the Family Home Guarantee (FHG), an initiative to support eligible single parents with dependents to purchase a home.
Through the initiative, eligible single parents can borrow money to build a new home or purchase an existing home with a deposit of as little as 2 per cent. The Government then guarantees up to 18 per cent of the value of the property with the chosen lender. This means the applicant is able to avoid the extra cost of lenders mortgage insurance, which is usually required when paying less than a 20 per cent deposit.
The Family Home Guarantee will be made available for 10,000 eligible applicants, spread out over four financial years.
Usually to buy a home, you are required to save at least a 20 per cent deposit if you want to avoid paying costly lenders mortgage insurance, or at least a 5 per cent deposit at an absolute minimum to even get a look in. The introduction of these single parent home loans means you now have an avenue to apply for a home loan with just a 2 per cent deposit, without the need to pay lenders mortgage insurance.
To access the FHG, you must have saved at least a 2 per cent deposit of the value of the property, and the government will then guarantee the remainder of the deposit up to a total of 18 per cent. The government does not pay this 18 per cent portion of the deposit, but instead guarantees it so you don’t have to pay lenders mortgage insurance. You will ultimately pay back the 18 per cent as part of your overall mortgage.
To access the FHG, you need to apply directly to one of the participating lenders, and advise you wish to access the guarantee. You can find a list of the participating lenders at nhfic.gov.au.
It’s up to you to then do the house hunt and find your dream home so long as it meets the initiative’s criteria (see below).
There are no costs associated with applying for the FHG, but if successful, you are responsible for meeting all of the costs and repayments associated with your home loan.
To be eligible for the FHG you must:
You do not need to be a first home buyer to qualify for the FHG, but you are only eligible if you do not currently own a home in Australia.
Any kind of residential property is eligible under the single parents home loans as long as the purchase price falls under the relevant threshold (see below) including:
The FHG offers home loans for single parents on Centrelink. If you are receiving Centrelink payments, these are usually included as your income, and any money you save from these can be used as part of your deposit.
As a single parent, you may be eligible for the Parenting Payment and Childcare Benefit from Centrelink, as well as the Family Tax Benefit from the government depending on your income.
It may seem obvious, but the fastest way to start heading towards your savings goal is to make a budget. Figure out how much money you have coming in, and set a figure to stick to for all of your outgoings, to ensure there’s money leftover for savings.
As a single parent, you may be eligible for one or more government payments. This government assistance can help cover your day-to-day expenses so your income can stretch further to save a deposit.
With interest rates so low, these aren’t as easy to find these days. But there are still a number of savings accounts that reward you with bonus interest as you add savings, and work towards your savings goal.
Under the FHG agreement, your home loan is subject to the usual lending arrangements by your lender, the same as any mortgage. If a situation arises where you are unable to make mortgage repayments, your best bet is to speak to your lender to discuss your situation as early as possible.
The FHG is only available for purchase prices that sit under the eligible thresholds in each state or territory. The capital city price thresholds apply to regional centres with a population over 250,000, such as Newcastle & Lake Macquarie, Illawarra (Wollongong), Geelong, Gold Coast and Sunshine Coast.
Conclusion: The Pros & Cons of Using the Single Parent Home Guarantee/Home Loan
Many single parents struggle to afford to buy a home on one income, but thanks to the Australian Government’s Family Home Guarantee (FHG), eligible people can now get approved for a home loan and buy their own place with as little as a 2 per cent deposit. These single parent home loans do not require you to pay Lenders Mortgage Insurance.
This is a great option for single mothers or fathers who are able to save the 2 per cent deposit, and are certain their income will be able to continue to service the loan for its lifetime.
But remember, you will still need to go through the usual process to apply for a loan to be eligible for the program. While the government will guarantee up to 18 per cent of your deposit, they’re not actually paying this amount, and you will ultimately need to pay this back as part of your mortgage repayments.
While it may be tempting to dive in and finally secure your own home with a low deposit loan, just take the time to review your personal circumstances and ensure you will be able to afford your repayments and continue to live in your dream home for a long time to come, not face a house nightmare.
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