When it comes to saving for a house deposit, it's hard to get around that two incomes are better than one. Getting a home loan on a single income can be just as difficult, but it's certainly not impossible.
How much do I need for a home deposit?
That 20% deposit can feel like the biggest barrier to entering the property market. But, contrary to popular belief, the 20% deposit requirement is certainly not a hard and fast rule.
Many lenders offer home loans to borrowers with less than 20% deposit. These loans are often referred to as 'low deposit home loans' and generally require borrowers to take out what's called Lenders Mortgage Insurance (LMI).
LMI and the single-income homebuyer
LMI is essentially an insurance policy that covers the lender should the borrower fail to repay their home loan.
Although LMI benefits the lender, it's the borrower that's required to pay for it. You can generally opt to pay LMI as an upfront one-off payment or it can be built into your loan amount. This, of course, incurs ongoing interest.
LMI often gets mixed reviews because it's an additional cost can run into tens of thousands of dollars. But LMI may also be worth paying if property prices are rising faster than your deposit savings.
Savings.com.au's Lenders Mortgage Insurance Calculator can give you a general idea of what you may be up for.
In practical terms, LMI can help you can get into the housing market with a deposit as low as 5%. For example, on a $650,000 home, saving a 5% deposit of $32,500 is far more achievable than a 20% deposit of $130,000. This can see you buy a home many years earlier and reap the benefits of your property's capital growth in the meantime.
Know your borrowing power
Having one income usually means less income overall than a two-income household which, in turn, means less borrowing power. Why? Because a prospective lender will be assessing your loan serviceability.
Saving up a decent deposit is one thing but you'll also need to be able to prove you can repay your loan while still meeting your other living expenses.
This can mean that you will only be approved to borrow a more modest sum of money. But a lower loan amount also means your monthly repayments will be smaller which can be a good thing for someone on a single-income budget.
It certainly pays to have some idea of your borrowing power before you begin your home buying journey to give you an indication of exactly what you will be able to afford and what properties you should be targetting.
Have realistic expectations
Because your borrowing power is smaller, you'll likely be more limited in what you can afford.
Whether you buy further out from the the city centre, regionally, or purchase a lower-priced entry-level apartment or 'renovators delight', there may well be some compromise on what you had in mind.
But it pays to remember, a first home is rarely a forever home and it's almost always a wise move to get a foot on the property ladder in a modest home that has good prospects for capital growth than waiting until you save enough for a dream home.
Take advantage of first homebuyer assistance
To help you on your home buying journey, the federal government provides support for aspiring home buyers who don't have a 20% deposit at the ready.
The Home Guarantee Scheme, administered through Housing Australia, essentially provides eligible homebuyers with a guarantee on home loans taken out through a participating lender without the need to pay LMI.
It's certainly worth checking out the available guarantees below:
If you're a single parent, the Family Home Guarantee allows you to access a home loan with a deposit as low as 2% if you meet the eligibility requirements.
See also: Are there home loans for single parents?
First Home Super Saver Scheme
Single first homebuyers might also want to check out a scheme that allows them to make voluntary extra contributions to their superannuation in a bid to speed up saving for a deposit.
Essentially, the First Home Super Saver Scheme allows participants to make up to $15,000 per financial year in extra super payments, capped at a total of $50,000 over all years.
Participants can then access their additional super payments (not employer contributions) plus any associated earnings to put towards a home deposit.
But the scheme, launched in 2017, has not been widely taken up in recent times. Post-pandemic, $50,000, plus earnings, is likely to fall far short of what is required for a home deposit in many housing markets.
State and territory government grants and concessions
As well as federal government guarantees, it's definitely worth checking out what state or territory government assistance is available according to where you live.
Most jurisdictions offer first home buyer grants but eligibility can depend on whether your home is newly built, its value, and whether you meet the criteria.
Check out what's available in your state or territory and whether you may be eligible below:
- NSW First Home Owner Grants
- Victoria First Home Owner Grants
- Queensland First Home Owner Grants
- South Australia First Home Owner Grants
- Western Australia First Home Owner Grants
- Tasmania First Home Owner Grants
- Northern Territory First Home Owner Grants
To help you on the path to home ownership, some states also offer stamp duty concessions to first home buyers and others who meet certain eligibility criteria.
See also: Savings.com.au Stamp Duty Calculator
Ask for help
This won't be an option for everyone but if you're fortunate enough to have parents who are in a position to help financially, it may be worth asking if they would be willing to help you get into the housing market. There are a number of ways they could assist.
Cash gift
Some Millennials with cashed-up parents in a position to give them money for a deposit may think they can sidestep the saving process completely.
But, beware. Many lenders will want to see that you also have what's called 'genuine savings' aside from the cash handout from mum and dad. As a rule of thumb, you may need to show you've saved at least 5% of the property's purchase as genuine savings when you don't have a 20% deposit.
You will also still need to prove you can meet your mortgage repayments. Lenders will look closely at your savings history and what you earn and spend each month.
A cash handout can help you on the road to buying a property but many lenders will want to see you can stand on your own two feet before approving a home loan.
Refinance the family home
If your parents have significant equity in their own home, they may be in a position to refinance and use some of it towards your home purchase.
Of course, this is not without its risks and needs to be carefully considered in terms of family dynamics. If you're one of multiple siblings, it may not be feasible for your parents to do this for all their children. You'll need to be reasonable in your expectations.
Guarantor loan
Asking your parents to go guarantor on your home loan is also a huge ask.
Essentially, when your parents guarantee your loan, they generally use their own property as security for it. This means if you fail to make your repayments, your parents will need to service the loan for you.
If they can't meet your repayments either, it's their property that could be repossessed. No pressure then.
Consider rentvesting
One trend growing in popularity among first home buyers is rentvesting. What this means is that you buy an investment property in a more affordable suburb while renting where you want to live.
Rentvesting can be a smart way to crack the property market because it allows you to buy a property purely from an investment perspective (i.e. focusing on capital growth and rental yield) which you can later sell, using the accrued equity to work your way up the housing ladder.
Some first homebuyers with a rentvesting strategy will live in the property for the first 12 months to take advantage of government schemes and concessions before placing it on the rental market.
Successful rentvesting involves doing your market research and wearing an investor hat in your property search. This can sometimes be far easier than taming the emotions involved in purchasing a home to live in.
(See case study below.)
What the expert says
"It's certainly possible for single buyers to purchase a property. We've had numerous clients doing just that in recent months. Sometimes we've helped guide them through the various government schemes like the First Home Guarantee. Other times we've helped them find alternative lenders or strategies such as utilising a Self-Managed Super Fund to purchase a property.
These are things that brokers like myself can help with, but there are things you can do yourself to help, like closing credit cards or cleaning up any bad spending habits such as gambling, credit card debt, regular use of Afterpay, etc. The important thing is to be realistic about what you can afford and then adjust your strategy accordingly."
Case study - Jayden Milne
Jayden Milne bought his first home in April 2024 at the age of 21 with a 5% deposit.
He purchased a block of land in the Ipswich suburb of White Rock, a fast-developing area of south-east Queensland, and signed a contract with a builder to construct a new home. The price for the house and land was $660,000.
This allowed him to access the Queensland government's First Home Owner Grant of $30,000 to put towards the purchase of new homes. The payment covered the cost of LMI and other property transaction costs. As the first-time buyer of an owner-occupier home priced under $800,000, he also received a stamp duty concession.
“I think my main piece of advice to first home buyers is that there is more than a deposit when it comes to buying your own place,” Jayden told Savings.com.au.
“There can be stamp duty, legal costs, home loan fees, and other things you have to account for.”
Jayden took out a construction loan and his home loan repayments increased in line with progress on the home which was built within eight months.
Planning ahead
“It helps to find out up front how much everything will cost so you can plan for it,” Jayden said. “I knew how much the repayments were going to go up by as the building progressed so I was ready for them.”
Upon completion, he moved into the home for the required owner-occupier period before placing it on the rental market and moving back into his family home, a strategy known as rentvesting.
“Working in the industry as a buyers’ agent at Propell Property, I had access to good information and advice and I was able to work out what was going to be best for me for my circumstances,” he said.
In a hot rental market, he found tenants within two days and the property is now negatively geared, with Jayden making extra payments on top of the rental income to service his home loan.
“It’s still negatively geared - I chip in a bit each week - but overall, it's been a good move for me,” Jayden said.
A foot on the ladder
After paying $660,000 for the home, a recent valuation priced it at $830,000 around 18 months later.
“I’m glad I made the move when I did, even paying lenders mortgage insurance, because it would be harder for me to afford that now on a single income,” he said.
His best advice is to research the area before buying and to take opportunities to get a foot on the property ladder when they come up.
“Working in the property investment industry, I understand that it’s important to get your first home purchase right - it can be pivotal,” he said.
“There’s a lot more demand in that bottom end of the market that’s making property prices in that sub-$1 million market rise quickly.
“You have to structure your finance correctly and have some buffers in place.
“I’m glad I took the leap because I can confidently tell other young people and property investors that it’s doable because I have done it.
“It’s putting my money where my mouth is.”
Jayden Milne in front of his first home.
Savings.com.au's two cents
Buying a home isn't easy. When there's only one income coming in, it can be twice as difficult but still doable.
There are many different pathways you can take towards home ownership, such as rentvesting or taking advantage of various government incentives and concessions.
It may also be worthwhile speaking to a mortgage broker about your borrowing power and the options open to you.