How to get a home loan if you’re a pensioner

Don’t let your age get in the way of purchasing your own home. Here are some tips to help get you started.

Even though some lenders view pensioners as being high-risk borrowers, there are still lenders willing to offer home loans to individuals receiving pension benefits. Read on to learn more about what options are available.

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.

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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

Frequently asked questions about home loans available to pensioners