Very Low Income - Large Deposit - will I get a house loan?

Hi all.

My apologies in advance for my limited understanding of everything related to home ownership. This is like a foreign world to me.

I am looking for any enlightenment on the following:

In short; I am a single parent (with 3 dependants) on a low income - less than $40,000 annually.

However, I am in the process of inheriting a substantial amount of money - between $300,000 and $400,000. I am so, so grateful for the opportunity to set myself and the kids up for the future.

However, a 3 bedroom home in our community cost between $650,000 - $850,000, and from the research I have done, I understand that I am not exactly considered a desirable lendee.

I will contact a mortgage broker once I know more about my new financial situation, but in the meantime I would love some perspectives from here.

Will anyone lend me money on such low income?

Thank you in advance for any input!

Serviceability is the no. 1 item lenders look at these days.

With 3 kids and 40k per year unfortunately won't be able to get any meaningful loan amt at all.

after food, utilities, transport, you wont have enough left over to service a mortgage
if you could get $400,000 and buy a $500,000 it might be possible

Even though I *might* have a 400,000 deposit?

I currently pay $500 in rent per week and have done so for nearly 2 years. I would want mortgage repayments that would be less than that.

They only look at deposit to see if u have to pay loan mortgage insurance and if u argue for a better interest rate since your deposit is larger.

However for loan amount it's all about serviceability.

This is true for the big 4 banks and for most banks.

Thank you for your feedback, not what I was hoping to hear, but very useful.

Might be completely off the cards, but are you tied to NSW?

You could easily buy a 3 bedroom house outright with no mortgage in other states with around 350k

Google "Borrowing Capacity Calculator" put your details in there and see what it comes up with as how much you can borrow. Your deposit wont matter if you can't service the loan.

So we aren’t talking personal circumstances here - but the respondents are pretty spot on....

Equity (your deposit)
And your ability to repay a loan
Are two completely different animals.

And the lenders are being closely monitored for the sizes of loans they give and whether people have the ability to repay them - even worse if it might mean you lose your deposit as a result.

Is your income full time or part time or casual?
Or is it Centrelink benefits (family tax benefits or other)
Or child support?
If it doesn’t include these - do you have some of these other incomes?
How old are the kids?
Do you have other commitments - credit cards? Car loans? School fees or day care?

All of this is part of the picture and why those generic calculators I don’t think will get close to an accurate answer in your circumstances unfortunately- as some lenders will take one income type more than another.

Ask friends or family to recommend a broker near you, there’s no cost and they may have some good solutions you hadn’t thought of

Do your circumstances allow you to move to a cheaper area or even another State? Cheaper doesn't always mean nastier and there are numerous beautiful well serviced areas that you could settle into for much less than 650k -850k. How much of Australia have you seen since arriving here?

One thing that hasn't been mentioned are future interest rates and while they have been unbelievably low for a long time now, at some time in this rapidly changing world they will increase and even small increases on historically low interest rates could/would be devastating to many. You don't want to put yourself in that position.

Thank you so much for your lengthy response; it is much appreciated.

With Centrelink benefits and child support that takes my annual income around $50,000. My work is permanent part-time. My kids are 10, 9 and 2.5 years old.

I have no other loans nor a credit card, and my credit score is very good.

Looks like I will have to find full-time work this year.

Unfortunately, due to shared care arrangements with the children's father, I am tied to this area. Fortunately, I absolutely love it here, and after 6 years hear we have built a wonderful community.

I think it is clear that I have to adjust my expectations and look for a lot cheaper homes in less attractive suburbs.

Something to consider is you could use those funds to purchase an investment property outright in an area you wont be living in to increase your annual income by a factor of whatever the rent is (less expenses like rates etc.). That way youre making more money for nothing AND you have an appreciating asset you can sell in the future to fund a family home and you don't lose out on the opportunity of capital gains by just sitting on the money while you sort out the rest of your financial circumstances to afford a loan.

you don't miss out on first home buyer grants by doing this either.

Some very good answers here but the most important issue is to find a very good finance broker. It may make all the difference, for example the fact that you have been paying rent means you have payment history but as others have said you need to increase your serviceability. Finance brokers have their bag of tricks, they will know how to present your application to a lender that is most likely to listen.

A lady I know was putting her clients on a six month saving plans then getting them home and land loans when no one else could.

It reminds me of a story I heard about Walt Disney meeting three bankers for a loan for Disneyland. After the presentation of the concept the first banker said, no way, the second, I can't see it and the third said , you have your money Mr. Disney and the rest is history.

OP here! Thank you for all the great replies. Your input was much appreciated as I am a complete novice when it comes to buying a home!

I am happy to report that in the year and a half since writing the original post, I have received the inheritance and also a pay rise.

I found myself a great morgage broker and was last week informed that I can get a loan of about $450,000. Thus, I am now looking for homes up to about 830,000.

In the area I am looking to buy this won't get me much, but that's a whole different discussion!

Thanks again to everyone who contributed to this thread.

It's understandable for income to be a key criterion, but it shouldn't be the *only* one. Frustrating that many banks seem to disregard other factors.

[quote="jakec":2jgu1d7f]It's understandable for income to be a key criterion, but it shouldn't be the *only* one. Frustrating that many banks seem to disregard other factors.[/quote:2jgu1d7f]

It's not the only criteria.

Expenses, location, marital status and how many dependant children you have are also factored as key criteria. Those factors are used in calculating benchmarks and stacking customers against them as a bare minimum. Income is objectively the only criteria that can be used to determine whether after handling the other factors stated above, whether there is enough for a loan to be paid.

Income is key to litterally all lending. If you can't prove you can afford to pay something ongoing, what other factors do you propose a bank use to mitigate the risk of lending hundreds of thousands of dollars? The subjective value of your project car in the garage, your stamp collection, an inheritance which may or may not eventuate in an indeterminable amount of time, the idea that you're a fast learner and you expect to get a job before the first payment is due?

That said there are lenders that do custom lending that considder different criteria if you're not a standard wage earner. People who are self employed or own a business often don't have regular incomes. So those get looked into differently. Income is still a factor, but where and how it is derived becomes more flexible. Though it's important to factor in the increased risk of such customers and often results in a much higher interest rate.

I would say go for Rentvesting strategy.

Rentvesting is a home-owning strategy where you rent a property to live in that's right for your lifestyle, while you own an investment property that's right for your budget.

Google above term or look on youtube, you will learn more about this new strategy going in the market.
Basically, it allows you to live where you like and own to rent the property somewhere, with this one day you will be in position to buy the home to live.