Mortgage help: how I bought a home with a 2 per cent deposit

A new scheme to help single parents purchase property with a tiny deposit has copped criticism, but everyone deserves a chance.

Would you buy real estate with only a 2 per cent deposit?

This is being offered to thousands of Aussie single parents from July 1, and it’s caused angst among some financial specialists and commentators.

Critics say it’s silly to lend money to people who can’t stump up more than 2 per cent, because it suggests they’re not good savers, they won’t be able to afford mortgage repayments, or they will suffer huge stress if property prices head south.

You won’t find me complaining about this new Family Home Guarantee Scheme, detailed in this month’s federal budget.

Complaining would make me a hypocrite, because I was once a 2 per cent borrower, and without some fancy footwork and an understanding lender several years ago, my dreams of home ownership might have remained a dream.

Single parents are being offered home loans with a 2 per cent deposit. Picture: iStock

I can understand some of the criticism of the scheme, but sometimes people just need to be given a chance.

Yes, it’s true that some Australian borrowers overextend themselves – whether their deposit is 2, 5 or 20 per cent – and others will struggle if interest rates rise, but it doesn’t mean that responsible borrowers should be shut out of the market

Owning real estate is the greatest step anyone can take towards achieving financial independence. Not only does it put a roof over a family’s head and remove the need to pay rent indefinitely, it’s an asset that grows over time and there’s no tax on capital gains to be paid when the property is later sold.

When my wife and I bought a new home years ago, we signed the contract with only a few thousand dollars in the bank, and then scrambled to scrape together our very small deposit during the building process.

We had two incomes – unlike single parents who will be seeking a home loan under the new government scheme – but those incomes weren’t spectacular, and instead we relied on showing the mortgage broker and bank how we had previously saved for a big-ticket expense.

People who are given the key to property ownership can build lifelong wealth.

A small deposit does not mean you’re bad with your money. Often it just means there may have been other important expenses in your life, too.

And lenders will still have to do their other checks on borrowers’ ability to repay their mortgages.

Another criticism of the Family Home Guarantee Scheme is that its 10,000 places are to be spread over four years and don’t help enough people. However, as has been shown by recent extensions to the First Home Loan Deposit Scheme that enables 5 per cent deposits, the government has been flexible depending on demand.

Giving single parents a chance of home ownership is great, as long as they have insurance and other plans to deal with unexpected problems or short-term falls in house prices. It could be just the financial boost they need.

A wise woman once shared this philosophy with me, and it’s worked quite well: “Bite off more than you can chew, and then chew like hell”.