Home loans for low income earners

Low income earners find it harder to get home loans. But it's not impossible, depending on your budget and deposit size.

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Richard Whitten

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Key takeaways

  • It's harder to get a loan as a low income earner but it's not impossible. Your success depends on factors like your spending, existing debts and how much you want to borrow.
  • While there are no specific low income home loans, you can increase your chances of approval by improving your credit score, paying off debt and cutting your spending before you apply.
  • Lenders may accept Centrelink payments as a form of income but it likely won't be enough by itself.

How much do I need to earn to qualify for a home loan?

The amount you can borrow depends heavily on your income. But it also depends on:

  • Your deposit size.
  • Your property's value (and how much you want to borrow).
  • Your existing debts.
  • Your credit score.

When you apply for a loan, lenders evaluate the amount you can borrow by looking into your capacity to repay. The amount of money you have in your bank account is a factor, as it shows that you can save money despite your expenses (daily expenses, utility bills, other loan repayments, etc.).

Start by using a borrowing power calculator to get a rough idea of how much you could borrow with your income.

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What income sources qualify for a home loan?

Income from a full-time job is what lenders really want to see. Even if you're a low earner.

But lenders may accept different financial sources when evaluating loan applications. Aside from having a job, receiving rental income, or regular government payments, lenders also look into allowances such as Centrelink payments, child support payments and pensions. Provide proof of these sources to submit with your application form.

What income documents will lenders expect?

Traditional loan applications require several documents:

  • Proof of your identity (passport, birth certificate, citizen’s certificate, driver’s licence, and in some cases, credit cards).
  • Proof of your income (recent payslips, letters of employment, tax assessments).
  • Your Australian Tax File Number.
  • Proof of residence (utility bills, recent bank statement, rate notice, valid driver’s license with photo).

If you are self-employed, you need to provide both personal tax returns and business tax returns for the past two years, and your balance sheet and profit and loss accounts for the same period.

Contractors need to provide their most recent employee contract that includes their income details. If you are earning any other income, such as from rent or through government benefits, you will need to present proof of that too.

Tips when applying for a home loan with a low income

You can increase the chances of being approved for a home loan, even on a low income. Here are a few options to think about:

  • Joint application. Consider applying for a loan with your partner or a co-signer. This combines two different income sources, raising your capability to repay the loan. It also takes into consideration the financial history of both borrowers, so be sure you both have good credit histories.
  • Borrow less. The lower the amount you apply for, the bigger the chance of it being approved. This is because it's less of a risk to the lender, and the lower loan size means lower repayments that are more likely to fit within your budget.
  • Lessen existing liabilities. Lenders look not just at your income, but also at your other financial activities. The few liabilities or less outgoing cash flow you have, the more of your income you can comfortably devote to home loan repayments.
  • Save a larger deposit. Low income earners can get a better chance of approval if the amount of money they have deposited in a bank account is high. A larger deposit indicates less money is needed, which means a lower income can suffice. It also shows the lender that you have financial discipline and you can pay back your loan on time.

Read our essential tips on how to increase your borrowing capacity

Sources

Richard Whitten's headshot
Senior Money Editor

Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

Richard's expertise
Richard has written 677 Finder guides across topics including:
  • Home loans
  • Credit cards
  • Personal finance
  • Money-saving tips
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34 Responses

    Default Gravatar
    AshSeptember 7, 2014

    Hi,
    I’m on income protection payments and had to leave my job due to mental health issues. Would income protection count as a viable form of income so I can apply for a home loan?

      Shirley Liu's headshotFinder
      ShirleySeptember 8, 2014Finder

      Hi Ash,

      Thanks for your question.

      If you declare the income you receive from your insurance to the ATO, then most banks should be able to accept this as genuine income.

      I’d recommend that you get in touch with a few banks to discuss your options. A mortgage broker can also help you find the right loan for your situation.

      Cheers,
      Shirley

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