Buying a House with Low Income

How to Buy Residential Property With Small Home Deposits

Sep 24, 2009

Low income earners can buy their first homes by saving for a home deposit, buying smaller and cheaper houses, making joint purchases or getting no- or low-deposit loans.

Buying a house is a big commitment. And for small income earners or young adults just making their way in the world, the thought of finding the right property, raising a home deposit, securing the right loan and going through home buying legal procedures can be very daunting indeed.

So how do first time home buyers with low income start the process of buying their dream homes? True, there are many first time home buyer loans they can apply for but there are a few other things they should consider as well.

Here are some suggestions for low income earners or those with small home deposits to buy residential property.

The earlier money is put aside for a home deposit, the more funds will be available by the time house hunting begins. Open a high interest savings account for this purpose. Fixed term deposits, online savings accounts and cash management trusts are secure and pay good interest rates. Those planning to buy a house five years or more down the road can also invest their savings in managed funds and shares. Although riskier, investments in shares and managed funds will certainly yield higher returns in a longer time frame.

Prospective young first time home buyers can also stay longer with their parents to quickly raise a house deposit. However, it’s important not to take advantage of the parents’ generosity. Help by paying some kind of rent and contribute in daily household chores.

Buy a Smaller or Cheaper House

Obviously, if money is an issue, the best solution is to aim for a smaller or cheaper house. In fact, many first time home buyers purchase more affordable units or apartments and later use the equity they’ve built up to borrow money to buy bigger and nicer homes in better suburbs.

Make a Joint Purchase With Others

A single person with a low income can also opt to make a joint purchase – buy a property with friends or relatives. It can, however, get complicated because of the multiple parties involved. One party may want to sell the property or become unable to make his portion of the monthly loan repayment. That’s why those planning to make a joint purchase should make sure their legal documents and contract are drawn up carefully.

Get a Low- or No-Deposit Loan

First time home buyers who haven’t accumulated ample home deposits don’t need to despair. They can still try to get low- or no-deposit loans, provided that they are in permanent employment and have a decent income. A no-deposit loan is essentially a 100% loan on the property while a low-deposit loan typically requires a minimum deposit of 3% to 5% of the purchase price.

While these loans help people buy houses earlier, they are also extremely expensive loans. Interest rates are higher and borrowers will have to take out a lenders mortgage insurance in case they default on their repayment. In the long run, those with low- or no-deposit loans end up paying much more than home buyers with a home deposit of at least 20% of the purchase price.

It is possible for low income earners to buy houses. Start by saving for a home deposit as early as possible. They can also buy smaller and cheaper properties first or make joint purchases with friends or relatives. Those with no home deposits but with steady and sound income can get low- or no-deposit loans to purchase their first homes.

Derkley, Karin. Buying & Selling Your Home for Dummies. Queensland: Wiley Publishing Australia, 2006.

Forbes, Iain. “What Loan is That?” in Your Mortgage magazine. New South Wales: Key Media, August 2009.

The copyright of the article Buying a House with Low Income in Buying/Selling a Home is owned by Wei Yin Wong. Permission to republish Buying a House with Low Income in print or online must be granted by the author in writing.