How can you get a home loan on a low income? 

Owning a home may seem out of reach if you’re on a low income, but it’s not impossible. Many lenders consider various income sources, including government benefits, part-time jobs, and support payments, when assessing home loan applications. While borrowing may come with stricter approval criteria, there are steps you can take to improve your chances of securing a home loan.

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Getting a home loan on a low incomecan be more challenging because lenders assess borrowers based on their ability to repay the loan consistently. A lower income often means less disposable income after covering daily expenses, making it harder to meet home loan repayments.

Additionally, low-income borrowers may have higher debt-to-income (DTI) ratio and limited savings for a deposit. They may rely on casual employment or government benefits, which some lenders consider less stable. Consequently, lenders may view these applicants as higher risk, potentially leading tostricter eligibility criteriaor higher interest rates.

Securing a home loan on a low income can be challenging, but there are steps you can take to increase your chances of approval:

Boosting your income to qualify for a home loan

Lenders often consider your income first while reviewing your home loan application. However, many lenders don’t limit what they consider income to just your wages and salaries for home loan applications. They also consider other regular payments that you receive, including Centrelink allowances, government payments and even child support.

This is why, if you have a low-paying job, you could improve the chances of getting home loan approval by having a dual-income when applying for a home loan. For example, paid employment and government assistance. 

Government benefits that are usually considered as part of your income are: 

• Disability Support
• Long Term Pensions (War/Widow's pension)
• Family Tax Benefits (Parts A & B)
• Carers Allowance

Proving that you can afford the home loan

While assessing your home loan application, your lender will look at your current income and expenses to judge if you can pay the expected monthly repayments. For example, if your income is low and expenses are high, you won’t have sufficient funds to make the repayments. If a lender determines that you won’t be able to repay the mortgage comfortably, your application might be rejected. 

To ensure you’re able to pay off the loan on time and to improve the chances of your home loan being accepted, consider doing the following: 

• Find a home with a reasonable price within your budget, and find a loan that provides a good low-interest rate. This pre-planning will help ensure that the repayments you need to make are not too high. 
• Before applying for a loan, consider paying off all your credit card debt and other loans. 
• Cut down additional expenses such as pay as you go services like Afterpay or general shopping. 
• Make regular transfers into your savings account, as this will show the lender you have good saving and financial habits. It also shows that you have something to fall back on if you’re unable to make the repayments using your income in bad months. 
• Don’t hide any loans or debts from your lender, as they will likely find out and you could get into trouble and lose your credibility. 

Using a guarantor to secure home loan approval

Some lenders could perceive you as a high-risk borrower if you’re looking for a home loan with bad credit or a low income. To help alleviate this concern, you could ask a family member to go guarantor on the home loan with you. A guarantor can reassure the lender that they will step in if you forfeit the loan or cannot make the repayments. If you get a guarantor on board, they’ll be included in any of the legal documents related to the loan. 

You can either get a guarantor for the deposit or the total loan amount. But, regardless of what they are going to guarantee, the guarantor needs to be credible and prove to the lender that they can provide the deposit or make the repayments if the need arises.

Improving your credit score

If you apply for a mortgage with low income and bad credit, the chances of your home loan being approved are slim. One thing you can do to help improve your chances is to improve your credit score before applying for a home loan. To increase your credit score, you could consider: 

• Paying off all your debts, or consolidating them into a single loan. 
• Not applying for too many credit cards or other loans. 
• Making any on-going mortgage repayments or credit card payments on time. 
• Decreasing your credit card limit and not maxing out your credit cards. 
• Making bills and rent payments on time.