Buying a house on a reduced income

The coronavirus pandemic has hit many Australians financially, through job loss and reduced income.

If you were hoping to buy a home before the pandemic but now find yourself earning less, you probably think your chances of getting a home loan are next to zero. But this may not be the case!

While lenders are very reluctant to lend to unemployed borrowers, a reduced income might not be the end of your chances. If you have a deposit saved, your spending is under control, and you have a realistic budget in mind, then you might be in a better position than you think.

Here are four tips to help you buy a home on a reduced income.

1. Cut back on your spending

This is tough advice, particularly when you’ve lost income. But finding ways to reduce your spending, however small, can offset some of your lost income and strengthen your home loan application.

Lenders always scrutinise your income and spending when you’re applying for a mortgage. You might not be able to do much about your income right now, but spending is something you have some control over.

Sit down for an hour or two, look carefully at your recent spending and try to identify things you can live without, things you need and things that you can cut down on or replace with a cheaper alternative.

This includes items and services like your digital streaming service subscriptions (do you need multiple subscriptions at once?) or buying cheaper grocery products and cutting down on luxuries like takeaway and alcohol.

We know, it’s easier said than done. But if you can cut back in some areas, it’s worth doing.

A lending specialist can also take a look at your budget and offers tips and advice around other steps you can take with managing your budget.

2. Check your credit score

Before you apply for a home loan, it’s a good idea to check your credit score. You can do this quickly online, and it will give you a clearer picture of your credit health.

You might have unpaid debts you’ve overlooked, or something in your file might be recorded incorrectly. If there’s a mistake in your credit score, you can challenge this and get your score cleaned up. This will strengthen your home loan application.

A lending specialist can help you access your credit file and help you understand how this will impact your chances of getting a home loan pre-approval which is highly recommended before you put a contract on a property.

Related Post: Why your credit score is now more important than ever

3. Partner with the right lending specialist

If you’re looking at getting a home loan on a reduced income, then you need to be working closely with an accredited lending specialist, who not only helps you find the right home loan – but who also has the skills to help get your loan approved.

Lenders have different eligibility criteria and lending standards. Some are stricter than others and may regard your reduced income as a bigger liability. Your deposit size and the value of the property you’re buying are also essential to consider. You may only have a small deposit below 20%. Some lenders, in this case, may not have a loan suitable for you or may offer one with a higher rate.

Eligibility depends on where you’re looking to buy and the property type as well. Some lenders restrict the amount they will lend you if you’re buying an apartment in a particular postcode, for example. They might reject your application or only give you 70% of the purchase price.

A lending specialist will offer more to you than a traditional mortgage broker – who may only help you choose a home loan product. Working with a credit trained professional will allow your loan application to be packaged up well and your individual circumstances discussed with the credit approval team.

4. Re-evaluate your home-buying budget

Unfortunately, if your income has taken a hit and you’re still determined to buy a house, then you might need to re-evaluate your budget. Take a realistic look at your deposit, your income and your price range. Then have a lending specialist “deep dive” into your individual circumstances with a full serviceability assessment.

If you can’t afford the repayments right now, even after trimming back spending, it’s unlikely a lender will approve your application. And you also don’t want to end up with a home loan you can’t afford to repay.

This may mean you need to readjust your budget and look for cheaper properties and cheaper suburbs. If that doesn’t work for you, perhaps you’re better off waiting to buy later when you’re back to your regular income again.

Your lending specialist can keep in contact with you via regular phone or web based chats and when you both decide it’s time to buy – you can hit the “go” button!

Because ultimately, whatever is happening in the property market, the right time to buy is when you’re financially ready to do so.

Our aim is to make applying for and understanding your home loan simple

We’re a genuine alternative to the banks, with local lending specialists who offer personalised home loan guidance to help you make the right choice.

We also offer free property and suburb reports to help you track price movements and research sales history before making an offer on property.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.