Case Study: First Home Buyers Purchasing an Established Home with a Low Deposit and Complex Income

This case study is provided for illustrative purposes only. Individual circumstances, lender criteria and outcomes will vary. It does not represent a typical outcome. Results depend on individual circumstances and lender criteria. Individual circumstances vary and eligibility for lenders, loan structures and government incentives depends on personal financial circumstances, lending policy and credit assessment at the time of application.

Many first home buyers assume they must purchase a newly built property to access grants or meet lender requirements. However, some buyers prefer established homes because they offer renovation potential or long-term value.

This case study outlines how a first home buyer couple explored lending options when purchasing an established property with a limited deposit and complex income sources.

The Client Scenario: First Home Buyers Seeking an Established Property

The clients were a first home buyer couple who had been renting while saving for a deposit.

They were specifically looking for an established home with renovation or value-add potential rather than purchasing a new build. One borrower worked in the construction industry and preferred a property they could gradually improve over time.

Although they had built savings while renting, their deposit remained relatively modest once purchase costs were considered.

The couple wanted to move forward with a property that suited their long-term plans rather than changing their strategy simply to access new-build incentives.

The Challenge: Low Deposit, Stamp Duty and Complex Income

Several factors made the loan application more complex.

Limited deposit while renting

Saving for a deposit while paying rent can slow the rate at which savings accumulate. Once stamp duty and other purchase costs were included, the available deposit created tighter borrowing parameters.

No First Home Owner Grant for an established property

Because the couple were purchasing an established home, they were not eligible for the First Home Owner Grant, which generally applies to new builds. They also needed to account for stamp duty and other upfront costs.

Variable FIFO income

One borrower worked in the construction industry as a FIFO worker, with income that varied over a six-month period and included overtime and allowances. This type of income requires careful assessment to demonstrate that the earnings are regular and sustainable.

Tax-free income from a not-for-profit employer

The second borrower worked in the not-for-profit sector, receiving a portion of their income as tax-free benefits. Different lenders treat these income components differently when assessing borrowing capacity.

Limited parental guarantee

The parents of one borrower were willing to assist by acting as guarantors. However, they preferred a limited guarantee structure, meaning their support would only cover a specific portion of the loan rather than the full debt.

The parents were retired, so the guarantee relied on available equity in their home rather than employment income.

Assessing Income and Lender Policy

To understand the couple’s borrowing capacity, each income source needed to be assessed carefully.

For the FIFO borrower, payslips and income history were analysed to demonstrate that overtime and allowances were consistent components of earnings rather than occasional income.

The loan submission also included supporting notes explaining the broader income pattern to help the lender understand the sustainability of the income.

For the not-for-profit borrower, the tax-free income component was assessed according to lender policy to determine how much of the income could be included in serviceability calculations.

Because lender policies vary significantly in these areas, lender selection became an important part of assessing borrowing capacity based on policy and serviceability requirements.

Structuring the Parental Guarantee

Another important element of the strategy was identifying lenders that accepted limited parental guarantees.

Some lenders require guarantors to support the entire loan amount. However, others allow a limited guarantee, where the guarantor only provides security for a defined portion of the loan.

This structure can reduce the level of risk for the guarantor while still helping the borrowers bridge a deposit gap. Once the LVR reached 80% or less, the guarantor would be released.

The application also focused on lenders comfortable with equity-only guarantees from retired parents, where the support is based on property equity rather than income.

The Outcome

Please note, outcomes vary based on individual circumstances and lender criteria. Eligibility for grants, incentives and loan approval is subject to lender criteria, government rules and your individual circumstances. Low deposit lending may involve additional costs such as Lenders Mortgage Insurance and stricter lending criteria, which should be considered based on your individual circumstances. The following outcome reflects one client scenario and does not guarantee similar results.

By identifying lenders whose policies suited the couple’s income structure and guarantor arrangement, it was possible to identify a lending option that supported the purchase.

The final structure incorporated:

• Assessment of both borrowers’ income sources

• A limited parental guarantee

• A lender comfortable with equity-based guarantor support

• A lender offering its own first home buyer incentive, which helped reduce some upfront costs based on lender policy at the time

This allowed the couple in this scenario to proceed with purchasing an established home aligned with their long-term plans, rather than changing their property strategy simply to fit standard lending settings.

Key Insights for First Home Buyers

First home buyers often face multiple challenges when entering the property market. This scenario highlights several considerations that may apply in similar situations.

• Saving a deposit while renting can make deposit requirements challenging.

• Income from FIFO work, overtime or allowances may require careful assessment.

• Tax-free income components can be treated differently depending on lender policy.

• Limited parental guarantees may help bridge a deposit gap for some borrowers.

• Different lenders have different policies, which can influence borrowing capacity and loan structure.

Understanding how these factors interact can help first home buyers explore lending options that align with their property goals and financial circumstances.