Single Parent Home Loans

Buying a home is a huge goal for many of us, one that is often financially out of reach due to skyrocketing home prices. For single parents in Australia, it can be especially difficult. Supporting a family on a single income can be extremely challenging, and make it nearly impossible to save for a sizable deposit.

The Australian government has taken action to encourage home ownership for single parent households. Owning a home allows individuals to build their financial assets, and gives families a sense of stability and security. The Family Home Guarantee, introduced in 2021, is a scheme by the Australian government designed to help single parents become homeowners more easily.

This guide will break down everything you need to know about the Family Home Guarantee, including how it works, who is eligible, and how to apply. The scheme might not be the right option for everyone, so consider all of your options and consult with a professional to make the right choice for you.

What is the Family Home Guarantee Scheme?

The Family Home Guarantee is a government effort to make it easier for single parents to purchase a home and provide a better living situation for their families. The Family Home Guarantee is part of the Home Guarantee Scheme.  The National Housing Finance and Investment Corporation (NHFIC) administers the scheme on behalf of the Australian Government.

Under the Family Home Guarantee, single parents can obtain a home loan with a deposit as low as 2% of the purchase price without having to buy expensive lenders mortgage insurance (LMI). Unlike some other government loan schemes, you do not need to be a first-time home buyer to qualify for the Family Home Guarantee.

Beginning 1 July 2022, 5,000 Family Home Guarantees will be made available each financial year (up until 30 June 2025).

How does the single parent home loan work?

Through the Family Home Guarantee, single parents can obtain a home loan with a deposit as low as 2% without the need to buy lenders mortgage insurance (LMI). Lenders mortgage insurance can cost tens of thousands of dollars, so this is a significant savings for potential home buyers.  Typically, a 20% deposit is the minimum deposit required to bypass the need for LMI. The Family Home Guarantee allows the Australian government to act as guarantor for your loan for up to 18% of the property value, bridging the gap between the deposit you can afford to pay, and the 20% threshold. The Family Home Guarantee is not a cash payment or deposit, but a guarantee to your lender. 

Interested borrowers can apply for a place in the scheme through one of the authorised lenders.

Am I eligible for the Family Home Guarantee?

Before applying for the Family Home Guarantee, review the following eligibility criteria.

1. You must be an Australian citizen and at least 18 years of age in order to qualify for the Family Home Guarantee. 

2. Permanent residents are not eligible.

3. You must be a single parent (without a spouse or de facto partner) with at least one dependent child. 

You must be able to show that you are the child’s natural or adoptive parent, and that the child is in your care, and you are responsible for their day-to-day care and development. This is not necessarily determined solely by your percentage share of custody.

4. You do not need to be a first-time home buyer to take advantage of the Family Home Guarantee, unlike some other government home loan schemes like the First Home Guarantee or the First Home Buyers Grant.

Even if you have previously owned property, whether or not you purchased that property with a spouse or partner, you can apply for the Family Home Guarantee as long as you are a single mother or father with at least one dependent child. 

5. You may not be a property owner at the time of application for this program.

You are not eligible for this scheme if you currently own a home, commercial property, investment property, vacant land, or any other type of property.

6. The Family Home Guarantee has an income cap and is only open to individuals with an annual taxable income of $125,000 or less. 

Income is based on the previous financial year as shown on the Notice of Assessment (issued by the Australian Taxation Office. Child support payments are not included in your taxable income.

7. You must be able to provide a deposit of at least 2% of the property value. 

If you have enough money saved for a deposit of more than 20% of the property value, your loan will not be eligible for the Family Home Guarantee.

8. Loans taken out via the scheme may not be longer than 30 years.

9. Borrowers must intend to be the owner-occupier of the property they purchase. The single parent must be the only person whose name is listed on the loan and title.

What if I am separated from my spouse but not yet divorced?

Individuals who are separated from their spouse but not divorced do not qualify as “single” parents.

What if I have an adult child with a disability?

You may qualify for the scheme if you have an adult child who lives with you and is at least 16 but under 22 years of age, and receive a disability support pension within the meaning of the Social Security Act 1991.  

For the purposes of the Social Security Act 1991, you must show that you are legally responsible (whether alone or jointly with another person) for the day-to-day care, welfare and development of the dependent child and the dependent child is in your care.

Interested applicants can use the Eligibility Tool to identify which guarantees they may be eligible for.

How do I apply for the scheme?

Applications cannot be submitted directly to the NHFIC, but to a participating lender.

All participating lenders will use the same eligibility criteria, but they may each have their own loan requirements and/or restrictions. Additionally, they may offer different loan products, interest rates, and minimum deposits. Compare lenders and home loan options before you apply. If you wish to change lenders after you have secured a place in the scheme, you may be able to keep your reservation but there can be complications.

After applying with your lender of choice, your lender will assess your eligibility and reserve a place for you in the scheme if you qualify. Your lender will inform you if you have successfully secured a place in the scheme. If you secure a place, you will need to enter a contract of sale within 90 days of pre-approval, or your place will expire. If your reservation expires, you will need to reapply. Your lender will process your loan application, and you will receive a Guarantee Certificate documenting that your loan has been guaranteed through the scheme.

Things to keep in mind when considering a single parent home loan

Interested borrowers should keep in mind that there are specific property requirements for the Family Home Guarantee. These include property types, and price caps determined by where you live.

What kind of property can I buy with the Family Home Guarantee?

Eligible property types include:

●       an existing house, townhouse or apartment

●       a house and land package

●       land and a separate contract to build a home (owner-builder contracts are not eligible)

●       an off-the-plan apartment or townhouse

Participating Lenders require your land to be titled prior to the issuance of a NHFIC guarantee, therefore the land will need to be titled before the end of the 90 day pre-approval period.

Additionally, Jervis Bay Territory & Norfolk Island have a cap of $550,000; Christmas Island & Cocos (Keeling) Islands have a cap of $400,000.

Other things to keep in mind when considering the Family Home Guarantee include the financial implications of buying a home with a low deposit. The lower your deposit, the larger your loan and the higher your monthly repayment will be.

You should also be prepared for interest rates to rise. Will you be able to continue making your monthly payments if rates go up?

Alternatively, if property values decrease, borrowers with large loans may end up in negative equity if they find themselves owing more than the property is worth.

Also keep in mind that even with a low deposit home loan, you will be responsible for additional costs such as stamp duty and other fees.

Tips for securing your loan

Even if you meet the eligibility criteria for the Family Home Guarantee, you will still need to be approved for a home loan. To increase your chances of securing a loan at a reasonable rate, you can take steps to increase your creditworthiness. 

Establish good credit by: 

• Paying down your debts

• Paying off your credit cards

• Paying all of your bills on time

It is also important to have a steady income and employment. Therefore, it is not a good time to leave your job if you are planning to apply for a home loan.

In order to qualify for the Family Home Guarantee, you will need at least a 2% deposit. But, it may be to your advantage to have a slightly larger deposit saved. Avoid applying for a loan before you are ready, or you may risk getting rejected.

Final thoughts

Finally, it is important to know that you may be eligible for more than one scheme under the Home Loan Guarantee Scheme. To determine which scheme is the best option for you, you can use the Eligibility Tool on the NHFIC website, speak with a participating lender, or consult with a financial adviser.

Other NHFIC sponsored programs include:

The First Home Guarantee - If you are looking to buy your first home, the First Home Guarantee (formerly the First Home Loan Deposit Scheme) can help you secure a home loan with a deposit as low as 5% without the need to buy LMI. The First Home Guarantee operates in a similar fashion as the Family Home Guarantee, except that it is only open to first-time home buyers and is open to married couples as well as individuals.

The First Home Super Saver Scheme  - This is another program geared towards first-time home buyers. Through the First Home Super Saver Scheme, prospective home buyers can make voluntary contributions to a superannuation (up to a maximum amount) and access the money for a home deposit. The money in a superannuation will grow faster than in a traditional savings account.

The right path for you will depend on your unique circumstances. Consult with one of our expert team members to get answers to your questions and determine the best home-buying plan for you and your family.