Don’t let your age get in the way of purchasing your own home. Here are some tips to help get you started.
Lenders may view pensioners as being a high-risk borrower, as pensioner incomes are generally lower and it may be more difficult for you to service your loan.
In turn, this can make it difficult for pensioners to receive home loans. However, there are many banks that are willing to offer home loans to individuals receiving pension benefits. Read on to learn more about home loans for pensioners.
Considerations when applying for a home loan on a pension
Pensioners applying for home loans must keep in mind that their income and financial position might limit their success in getting a home loan. This is mainly because the pension is lower than the normal income of other applicants who are applying and the income level required. If you have assets and believe you can meet lending requirements, it might be a good idea to discuss your position in person with your financial provider or mortgage broker, as applying online may be difficult if you can’t demonstrate your capacity to repay the loan. Also keep in mind that a small number of home loan lenders will set an age limit for different products, so be sure to check the terms and conditions before applying.
What types of home loans might be available to pensioners?
- Reverse mortgages. A reverse mortgage allows you to borrow funds using equity from your home as security for the loan. A reverse mortgage can either be paid as a lump sum, a regular stream of income, a line of credit or a combination of these. No income is needed to qualify and for this reason, the interest rate tends to be higher. You must repay the sum of borrowed money when you sell your home, pass away or move into aged care.
- Variable rate loans. Variable rate loans are a common loan choice in Australia. With a variable rate loan, your interest rate is subject-to-change based on interest rate fluctuations. For example, when interest rates are low, the interest rate on your loan should also be low, allowing you flexibility and possible cost savings.
- Fixed rate loans. A fixed rate loan is more secure than a variable rate loan. With a fixed loan, the interest rate for your loan will be set upfront and you commit to this rate for the entirety of your loan. This means you avoid any possible fluctuations in interest rates and you also know your repayments upfront. This kind of loan takes the stress away from worrying about interest rate changes.
- Line of credit loans. A line of credit is a funding line which uses the equity in your home. It’s an approved amount that you can use a bit at a time or all at once. You loan is approved against a security and you can draw on this loan amount at any time. You only pay the interest on the amount that you use. For example, if you get a line of credit of $200,000 and only use $50,000, you only pay interest on the $50,000. These are good for those who are unsure if they need the full value of a loan.
How to compare home loans
- Interest rates. Interest rates are one of the most important elements to compare as interest is the biggest expense for home loans. For pensioners, it’s important to look for the lowest interest rate because this is what will help you save money.
- Home loan flexibility. It’s important for your home loan to provide you with flexibility. This may be flexibility in repayment schedules, flexibility in making additional repayments and redraw facilities. Compare each loan and see what flexibility it can offer you.
- Eligibility requirements. Some home loans will require you to meet certain eligibilities in order to take out that home loan. This may include a regular source of income, a good credit history and more. Pensioners in particular should compare the eligibility requirements of home loans because some may be more appropriate to apply for than others.
- Fees and charges. Most home loans have mandatory fees and charges that you may have to pay. Compare any potential fees and charges each loan has - these may be either upfront fees or ongoing fees - and select an option with lower fees to help save money.
- Loan term. Each home loan provided by financial lenders will have different loan lengths. Compare and select the home loan that provides you with the loan length to meet your needs.
Am I eligible for a home loan if I'm on a disability pension?
Generally, a disability pension is considered a valid form of income by most lenders. Therefore a home loan application for someone on a disability pension is not treated any differently from an application where someone services their loan with other forms of income.
Like any applicant for a home loan, the lender will review whether the amount of income support you receive is sufficient for you to comfortably repay the loan.
Most lenders will review your application on a case-by-case basis. Your eligibility for a home loan will depend on the amount of income you receive and how much of this can be used to service a loan.
Other factors including your age, assets and debts will be assessed by a lender on an individual basis.
Each lender will have different eligibility criteria, so it’s best to speak directly with your mortgage broker or lender to determine whether a home loan is suitable for you.
Extra documentation for disability pensioners
Among other eligibility criteria required by the lender, you’ll generally need to provide the following:
- Evidence of funds to complete the deposit.
- Bank statements showing Centrelink benefits being paid into your bank account (i.e. some lenders require 6 months of recent bank statements).
- Letter from Centrelink confirming the status and nature of your disability pension.
Am I eligible to receive a home loan if I receive the Veteran's Pension?
Many lenders may accept a Veteran's Pension as a source of income for a home loan. This applies if you are receiving:
- Department of Veterans' Affairs War Widows or Widows Pension
- Department of Veterans' Affairs Service Pension
- Department of Veterans' Affairs Age Pension
Additionally, lenders may accept the Department of Veterans' Affairs Incapacity Pension as a source of income.
In order to demonstrate your pension as a source of income for a home loan application, you'll need either a current bank statement showing your pension payment, or a current Department of Veterans' Affairs statement.
Pros and cons of home loans available to pensioners
Pros
- Gives you funds when you need it. These home loans allow pensioners to enter the property market and give you the funds you need, when you need them.
- Extra benefits. Some home loans available to pensioners come with extra benefits such as low or no interest rates, flexible payment plans and advance payments.
- No proof of income required for reverse mortgages. With reverse mortgages, no proof of income is required. It’s important to note that other home loans will require proof of income unless it’s a low doc loan.
Cons
- Higher interest rate. Reverse mortgages tend to have higher interest rates compared to other home loans.
- Eligibilities. Some home loans have specific eligibility requirements you must meet that may be quite stringent.
Frequently asked questions about home loans available to pensioners
What is a home loan?
A home loan is when an advance of money is provided to a borrower from a lender when they want to purchase their own home or land to build their home. The lender will give you the money you need to purchase your house or make improvements. Home loans are primarily for those who want to enter the property market but do not have the full property value saved up. Home loans are best suited to anyone who has a good credit history and wants to purchase a house but does not have all the funds required.
How do home loans work?
When you want to purchase a home but don’t have the full amount of the funds that you need to purchase, then you should apply for a home loan. Typically, you apply for a home loan if you meet the eligibilities of each financial lender. With most home loans, you are required to pay a deposit. Typical deposits tend to be around 20%, but in some circumstances, your deposit can be as small as 5%. The lender will give you the money you need to purchase your home and you are liable to pay the loan back within a certain amount of time, as well as interest on the loan and any additional fees.
Can I still apply for regular home loans?
Yes, pensioners can still apply for regular home loans that aren’t specific home loans for pensioners but you should keep in mind you may not be successful if you don’t meet eligibility or income requirements.
Other than my pension, what else will be considered in my application for home loans?
Any other forms of income you may receive, your previous credit history, and any other assets that may be in your name can be used to boost your home loan application. Usually your pension is taken in account if it is taxable.
Will I need to come up with a deposit if I’m on a disability pension?
Generally, a person on a disability pension will need to come up with a 20% deposit. This is because there is no other salary or other source of income that can be used to service the loan- there is little security should you default on your loan.
Again, this criteria varies from lender to lender.
If I’m on a disability pension, what happens if I have a co-borrower?
If take out a mortgage with a co-borrower, generally your ability to meet your repayments is increased so the lender will view you as being a less risky borrower. In this case, your application may have a greater chance of being approved.
Some lenders may only accept your application if your co-borrower is working. For instance, some lenders will assist you if you’re buying a new home together with your son or daughter. However, some banks may not be able to help you if you're borrowing on your own.
Hi! I was wondering if I’m able to obtain a loan from your company. I’m waiting for my paperwork to go through Centrelink for single parenting payments and disability.
Hi Rosemary!
Thanks for the comment.
You may check our comparison table for lenders on this page for personal loans and a guide for home loans.
Click “Go to Site” green button to proceed with your application.
Hope this helps.
Cheers,
Jonathan
I just want to know if i can borrow personal loan payable in 3 yrs ty
Hi Maritess,
Thanks for reaching out.
We feature a number of personal loan products on this page with a repayment period of 3 years or more.
Before you apply, you may want to check first your credit score for free through this page to help in identifying your possible options.
Cheers,
Anndy
My question is im on a disability pension and my mother-in-law wants to help me out get a home loan we got 2000 deposit plus a caravan worth 80000 is there anyway we can get a home loan now
Hello Jess,
Thank you for your question.
For eligibility requirements, some home loans will require you to meet certain eligibilities in order to take out that home loan. This may include regular source of income, a good credit history and more. Pensioners in particular should compare the eligibility requirements of home loans because some may be more appropriate to apply for than others. Like any applicant for a home loan, the lender will review whether the amount of income support you receive is sufficient for you to comfortably repay the loan. For more information on this page, please navigate through “Home Loan Offers” section and you will see the options we’ve listed there.
I hope this information has helped.
Cheers,
Harold
I was enquiring about a home loan, and was amazed when I was told that our franking credit from our shares was not used when our income was calculated and also a small pension from overseas.
The amount of these are around $25000.
Im 68 and self funded retiree and this also had a bearing on the loan, but this I can understand, the ATO have another way of looking at our franking credits, they use it as income, It looks to me as an uneven playing ground.
Your answer whatever it may be will be welcome.
Hello Jeppe,
Thank you for your question.
Each lender has their own lending criteria, and you may choose to accept or ignore different income streams. Another option is to seek a different lender to see if their lending policy includes franking credits, or speak to a mortgage broker and find out which lenders may be better to approach.
I hope this information has helped.
Cheers,
Harold
Hi Finder – my question is if a pensioner apply for a home loan and has a boarder (wife) who works permanently be counted as income and help with being able to acquire a loan. Thank you
Hello Lynn,
Thanks for your question.
Basically, the pensioners applying for home loans must keep in mind that their income and financial position might limit their success in getting a home loan. This is mainly because the pension is lower than the normal income of other applicants who are applying and the income level required. If you have assets and believe you can meet lending requirements, it might be a good idea to discuss your position in person with your financial provider or mortgage broker, as applying online may be difficult if you can’t demonstrate your capacity to repay the loan. Also keep in mind that a small number of home loan lenders will set an age limit for different products, so be sure to check the terms and conditions before applying.
With regards to your specific concern you may need to speak with a financial provider or mortgage broker to give you a proper guidance regarding this matter.
I hope that helps.
Cheers,
Harold
Hi Finder
I would be very pleased if you could clarify the below query for me?
Your site states that on the day you apply for the age pension you must be in Australia and “a resident”
What exactly does be a resident mean?
Regards
Mike
Hi Mike,
To be a resident you need to be living in Australia and either:
an Australian citizen
a permanent visa holder, or
a protected Special Category visa (SCV) holder
You need to have been an Australian resident for a continuous period of ten years to be eligible for the pension. You can find out more on the Department of Human Services website.
Hope this helps,
Elizabeth
Hi Finder / Elizabeth
Thank you very much for responding to my above query so quickly!
I have one more question if that’s possible
Q – If you are receiving the pension in Australia, how long are you allowed to spend out of country (eg on holiday), per trip, and how long in total per year?
Regards Mike
Hi Mike,
No worries. Your pension rate will not change unless you take a holiday for more than six weeks or decide to move out of Australia permanently. You’ll need to notify the Department of your travel plans if this is the case. If you travel for longer than six weeks you will be paid an “outside Australia” rate, your pension supplement will reduce to the basic rate and your energy supplement will stop.
If you travel outside of Australia for 26 weeks the rules are different. After 26 weeks your rate will be based on how long you have lived in Australia as an Australian resident between the age of 16 and age pension age.
I hope this information has helped,
Elizabeth
my mother is looking to get a loan she is on aged pension she owns another property outright. so does she need a deposit for a home loan or can she use other property ???
HI David,
Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage or finance experts so can only offer generalised advice.
Your mother could use the already owned home as security for the deposit in order to get a loan for another property purchase however it would be recommended that she seek professional financial advice before doing this so that she is aware of all the risks involved. She may also want to speak to a mortgage broker about what lending options may be right for her.
Regards
Jodie
line of credit loans,what are the % rates
Hi Stephen,
Thanks for reaching out.
On this page, you can compare a range of line of credit loans with competitive interest rates. If you think one of these loans sounds right for you, click on the ‘go to site’ button to be redirected to the lender’s website or to a mortgage broker page where you can discuss your borrowing needs.
Thanks,
Belinda
my wife is a disability pensioner & and i am her carer,we have been on the pension for over four years.
Hi Stephen,
Thanks for getting in touch.
I’ve sent you an email to follow up with this enquiry.
Thanks,
Belinda
Hi, my brother was recently made redundant and is currently looking for work.
He has $170,000 in cash and is wanting to borrow $140,000 for a townhouse.
Can he use this large deposit to borrow the amount he needs even though he’s not working? he has a partner who is also on the disabled pension, who can contribute to the loan.
Hi Steven,
Thanks for getting in touch.
Your brother might be interested to read our page about applying for a home loan (or refinancing) while unemployed. Evidently, it can be difficult to qualify for a home loan while you’re not employed as the lender views you as a high-risk borrower as they will be uncertain about your propensity to repay the loan.
The large deposit will help, but your brother will also need to demonstrate that he has adequate savings, equity, assets, government benefits (assuming a joint application with his partner), and/or other income sources that will be used to service the loan. He may also need to take steps to show the lender that he is actively seeking work.
He should get in touch with a mortgage broker as a broker will be able to help him understand his borrowing power and they will be able to draw upon a panel of lenders that are more likely to review his application. He may want to consider approaching specialist or non-bank lenders.
Thanks,
Belinda