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Investing on a Low Income

Author: Nila Sweeney
Source: Propertymarketinsider.com.au

Just because you don’t earn a six-figure salary, or you don’t have many assets yet, it doesn’t mean you can’t break into the property market.

Granted that property prices have soared in the recent years, starting up a property investment portfolio is still a realistic prospect for a determined investor.

But first, a reality check

For low-income earners, getting finance is easily the most challenging part of getting started. This is where a lot of beginner investors get stopped. Without a mortgage, you won’t be able to buy an investment property.

Not only that, you may not get your finance approved or you may be limited to how much you can borrow. Your borrowing capacity depends largely on your income; therefore, the amount you earn will restrict the mortgage you can get and the property you can buy.

Luckily, there are many ways to overcome these challenges

While lenders have now become strict with their lending policies, you may still get your loan application approved by showing them you can pay off your mortgage.

You also need to show them you have a solid employment history and that you are paying off your debts consistently.

Most importantly, you need to keep your credit record squeaky clean.

Here are some tips to boost your chances of getting your loan approved:

  • Reduce unnecessary expenses

    If you’re renting, you may consider moving back to your folks’ place to save rent money. This will help you improve your borrowing capacity as you now have lower living expenses.

    Also limit eating out, buying that take away coffee or traveling as you build your savings.
     
  • Pay off your debts

    Having other personal loans, car loans or high credit card limits will severely impact the amount you can borrow. Pay off your debts, or at least reduce them, as quickly as you can.
     
  • Make it your priority to save

    With tighter lending policies, lenders are now looking for bigger savings from borrowers. Not only do you need to save more, you also need to show that you’ve been doing it consistently for a period of time.

    To make it easier, you can automate your savings so a portion of your income gets paid directly into a separate savings account.
     
  • Consider getting a second job

    Making extra cash on the side will greatly improve your chances of getting approved for a home loan. This will also help your cash flow if you already have a loan.
     
  • Keep your credit record clean

    Having a clean credit record is a must for any borrower. Having a blemished credit record will dramatically reduce your chances of getting a loan approved with the mainstream lenders.

    Make it your mission to keep it clean by paying your debts and bills promptly all the time.
     
  • Ask your parents to be your guarantor

    By having your parents guarantee your loan application, you can break into the property market sooner. 

    You can borrow the entire loan amount and your parents will guarantee the whole mortgage. This ties them up to the entirety of the loan term. 

    Your guarantor can also give guarantee to just a portion of the loan or split the loan between you and them. 

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Nila Sweeney
Managing Editor of Property Market Insider and a former editor of Your Investment Property Magazine.

Published: 15 June, 2016.