14 Best Home Loans for Single Mothers in Melbourne

As a single mother in Melbourne, the dream of homeownership can feel daunting. Balancing the needs of your dependent child, managing a single income, and trying to navigate Melbourne's competitive housing market isn’t easy. 

But with the right loan product and expert support from experienced mortgage brokers, you can step onto the property ladder without being overwhelmed by the process.

In this guide, we’ll explore the 14 best home loan options for single mothers in Melbourne and how you can increase your borrowing power. We’ve also included real 2024 data and insights into Melbourne’s property market, along with practical tips to help you succeed.

Melbourne Property Market 2024: Why It's a Great Opportunity for Single Mothers

The Melbourne property market in 2024 presents a unique window of opportunity for single mothers looking to achieve the dream of homeownership. While prices remain high compared to national averages, certain market conditions make it more accessible for single-income families:

1. Regional Shift: With increasing work-from-home flexibility, there’s been a migration towards more affordable outer suburbs and regional centres. Areas like Melton and Wyndham offer family-friendly environments and median house prices below $600,000, much more attainable than inner-city prices.

According to CoreLogic’s latest data, Melbourne’s outer suburbs saw price growth of only 2.7% in the last quarter, compared to higher gains in the inner city. (Source:CoreLogic Melbourne Property Market Update)

2. Government Support: Melbourne is a focal point for government housing schemes such as the Family Home Guarantee, which helps single parents purchase a home with a 2% deposit. The Victorian Government is also expanding its First Home Owner Grant to include more affordable housing in regional areas. 

3. Property Price Caps: The Melbourne property price threshold for various government schemes has been adjusted, allowing more single mothers to qualify for financial assistance programs. With a cap of $800,000, properties in suburbs like Craigieburn and Cranbourne are within reach. (Source:Domain Melbourne Market Report)

4. Low-Interest Rates: While mortgage rates are on the rise, they are still relatively low compared to historical averages. This is particularly beneficial for single mothers managing a tight budget. Many lenders offer fixed-rate options that provide long-term financial stability. (Source: RBA Interest Rate Overview)

Melbourne’s evolving property market offers both stability and growth potential, making it an ideal time for single mothers to take advantage of these opportunities and secure a place to call home.

Common Requirements for Single Mothers' Home Loans in Melbourne

Before applying for a home loan as a single mother in Melbourne, it's essential to understand the basic criteria lenders use to assess your application. While each lender has unique requirements, most will look at the following factors:

1. Stable Income: Proof of steady income, including salary, child support payments, and any government benefits like Family Tax Benefits.
2. Credit History: A solid credit score is important, though some lenders may offer low-deposit loans even with a lower score.
3. Minimum Deposit: Typically, a 5-10% deposit is required unless you qualify for programs like the Family Home Guarantee, which only needs a 2% deposit.
4. Employment Status: Full-time, part-time, or even self-employed single mothers can apply, but lenders often prefer those with a stable job history.
5. Eligibility for Government Schemes: Programs like the First Home Owner Grant or Family Home Guarantee may require Australian citizenship or permanent residency, along with income limits.
6. Property Price Cap: Government-backed schemes usually have maximum property price thresholds, like Melbourne's current cap of $800,000 under the Family Home Guarantee.

These requirements are the first step toward securing your dream of homeownership. Meeting them increases your chances of approval and getting the best loan terms available.

14 Types of Home Loans for Single Mothers

As a single mother in Melbourne, understanding the various home loan options available to you is key to making an informed decision about your financial future. 

Below are 14 types of home loans that can be particularly relevant to single mothers, helping you secure a home without the added pressure of bank-specific offers.

1. Fixed-Rate Home Loan

A fixed-rate home loan locks in your interest rate for a set period, typically 1 to 5 years. This is ideal for single mothers who want to budget confidently, as your monthly mortgage repayments will stay the same during the fixed period, no matter how the market changes.

• How It Works: The interest rate remains unchanged for the agreed period, giving you certainty with your monthly payments.
• Benefit: Provides financial stability and protects you from potential interest rate hikes.

2. Variable-Rate Home Loan

With a variable-rate home loan, the interest rate can rise or fall based on market conditions, which means your repayments will fluctuate. This can be a good option for single mothers looking for flexibility, especially if you're comfortable with the possibility of lower repayments when interest rates fall.

• How It Works: The interest rate changes according to market conditions, so your repayments can increase or decrease over time.
• Benefit: Offers flexibility and the potential to save if interest rates drop, but you’ll need to budget for potential rate rises.

3. Interest-Only Home Loan

An interest-only home loan allows you to pay only the interest for a set period (usually up to 5 years), meaning your repayments will be lower during that time. This can be beneficial for single mothers needing to keep their monthly expenses low in the short term, though you'll eventually need to start paying off the principal amount.

• How It Works: For a specified period, you only pay the interest, which keeps repayments low but doesn’t reduce your overall loan balance.
• Benefit: Ideal for managing short-term financial constraints, but keep in mind that principal repayments will start later, potentially increasing your costs in the long run.

4. Offset Home Loan

An offset home loan links your mortgage to an offset account, where any savings you deposit are used to reduce the amount of interest you pay on your loan. This type of loan is perfect for single mothers who want to use their savings more effectively while still keeping access to those funds.

• How It Works: Any money in your offset account reduces the amount of interest you pay, lowering your monthly mortgage repayments.
• Benefit: Maximises the efficiency of your savings by reducing the interest you owe, without locking away your funds.

5. Low-Deposit Home Loan

A low-deposit home loan allows you to purchase a home with as little as 5% deposit or less. This is a great option for single mothers who haven’t had the time or means to save a large deposit. Government schemes like the Family Home Guarantee make this option even more accessible by reducing the Lenders Mortgage Insurance (LMI) requirement.

• How It Works: You need a smaller upfront deposit, and the lender may cover the rest through Lenders Mortgage Insurance or a government guarantee.
• Benefit: Enables single mothers to enter the property market sooner, even if they haven’t saved a large deposit.

6. Split Loan (Fixed & Variable Combination)

A split loan combines both fixed and variable interest rates. Part of your loan has a fixed rate, giving you stability, while the rest has a variable rate, offering flexibility. This type of loan provides balance, especially for single mothers who want a blend of security and the chance to benefit from market interest rate drops.

• How It Works: A portion of your loan has a fixed interest rate, and the other portion has a variable rate, allowing you to enjoy the benefits of both.
• Benefit: Gives you the best of both worlds — security with the fixed rate and flexibility with the variable rate.

7. Construction Loan

If you’re considering building your own home, a construction loan is tailored to finance the construction process. With this loan type, funds are released in stages as the construction progresses. This is ideal for single mothers who want to control their spending while building their dream home in Melbourne.

• How It Works: Loan funds are drawn down progressively as each stage of the construction is completed, reducing your interest payments until the full loan is used.
• Benefit: You only pay interest on the portion of the loan that has been drawn down, helping manage costs during the construction phase.

8. Guarantor Home Loan

A guarantor home loan allows a family member, such as your parents, to use the equity in their property to help secure your loan. This can be especially helpful for single mothers who may not have a large deposit but have family members willing to assist.

• How It Works: A guarantor provides additional security by offering their own property’s equity, which helps reduce the need for a large deposit or paying Lenders Mortgage Insurance.
• Benefit: Helps single mothers get into the property market without needing a significant upfront deposit, while also potentially avoiding LMI costs.

9. Family Home Guarantee (Government Scheme)

The Family Home Guarantee is a government-backed initiative that helps single mothers and single parents purchase a home with as little as a 2% deposit, without the need for Lenders Mortgage Insurance (LMI). It’s available for both first-time home buyers and those who’ve previously owned property but no longer hold any real estate.

• Eligibility: Single parents with at least one dependent child.
• Benefit: Helps reduce the deposit burden, making homeownership more accessible. 

10. First Home Owner Grant (FHOG)

The First Home Owner Grant (FHOG) is a one-time payment available to first-time home buyers, including single mothers. In Victoria, eligible buyers can receive up to $10,000 towards purchasing or building a new home, which can significantly reduce the upfront costs.

• Eligibility: First-time buyers purchasing a new home or constructing one under the property price caps.
• Benefit: Provides a lump-sum payment to assist with the purchase of a home. 

11. Shared Equity Schemes

A shared equity scheme, such as the Victorian Homebuyer Fund, allows you to buy a home with a co-investor, typically the government, taking a share of the equity in the property. This scheme allows eligible single mothers to borrow up to 25% of the property’s value, reducing the mortgage amount needed and making the property more affordable.

• How It Works: You purchase part of the property, and the government owns the rest. You only need to repay their share when you sell the home or refinance.
• Benefit: Helps reduce borrowing amounts and monthly payments.

12. Rent-to-Buy (Lease Option Agreements)

With a rent-to-buy scheme, single mothers can move into their desired home and pay rent with an option to buy it later. A portion of the rent goes towards the future purchase price, allowing single mothers to save for a deposit while living in the home.

• How It Works: A legal agreement allows you to rent the property for a set period (typically 1-5 years), with the option to purchase at a pre-agreed price.
• Benefit: Reduces the need for an immediate large deposit and allows you to secure a home while building up your savings.

13. First Home Super Saver Scheme (FHSSS)

The First Home Super Saver Scheme (FHSSS) allows single mothers to save for a home deposit within their superannuation fund, benefitting from the lower tax rates on super contributions. This can help speed up the savings process, especially if your income is modest.

• How It Works: You make extra contributions into your superannuation fund, which you can then withdraw for a home deposit (up to $50,000).
• Benefit: Reduces the tax on your savings, helping you build a deposit faster. 

14. Downsizer Contribution Scheme

If you're a single mother who has previously owned property and is over 55 years old, the Downsizer Contribution Scheme allows you to sell your current home and contribute up to $300,000 of the sale proceeds into your super fund. This can free up cash to either buy a smaller, more affordable home or boost your retirement savings.

• How It Works: The proceeds from selling your home are contributed to your super fund, which could then be used to fund the purchase of a more affordable property.
• Benefit: Helps single mothers nearing retirement age downsize without taking on a large mortgage. 

Case Study: Sarah’s Journey to Homeownership

Sarah, a single mother of two, was struggling to find a home loan on her part-time income of $70,000 per year. 

After researching her options, she discovered the Family Home Guarantee and applied for a loan with a 5% deposit. 

With the help of her broker at LM Connect, Sarah purchased a land package in Melbourne's western suburbs for $700,000. By using the Family Home Guarantee, she avoided paying Lenders Mortgage Insurance, saving her over $20,000. 

Today, Sarah is a proud homeowner and continues to build her financial stability.

FAQs

What is the 2% deposit scheme in Australia?

The Family Home Guarantee allows eligible single parents, including single mothers, to buy a home with as little as a 2% deposit, with the government guaranteeing the loan to avoid Lenders Mortgage Insurance (LMI). It’s available for both first-time buyers and those re-entering the property market.

Can a single mum use super to buy a house?

Yes, under the First Home Super Saver Scheme (FHSSS), single mothers can withdraw voluntary super contributions (up to $50,000) to use as a deposit for their first home. However, this applies only to first-time buyers, and conditions apply.

How do single parents afford a mortgage?

Single parents can access various government schemes, such as the Family Home Guarantee and First Home Owner Grant, to reduce deposit requirements and avoid LMI. Additionally, lenders may consider other income sources like child support or Family Tax Benefits when assessing loan eligibility.

How much can I borrow for a home loan as a single mother?

The amount you can borrow depends on your income, expenses, and credit history, but typically ranges from 3 to 5 times your annual income. Government schemes and having a guarantor can increase your borrowing power.

Is there an income requirement for single mums to avail a home loan?

Yes, most lenders require a stable income, with some schemes like the Family Home Guarantee setting an income limit of $125,000 per year for single parents. Lenders will assess your total taxable income and any additional sources like government benefits.

Final Thoughts

Becoming a homeowner as a single mother in Melbourne is possible with the right information and loan options tailored to your needs. By exploring government schemes, flexible loan types, and alternative pathways, you can take that crucial first step toward owning your own home. 

If you’re ready to explore your options, reach out to the experienced team at LM Connect. We’re here to help you find the best solution to make your homeownership dreams a reality. Call us today at 0423 713 362 or visit LM Connect for personalised advice!