Earning a lower-than-average income does not necessarily mean your homeownership dreams are over – but it certainly makes your entry to the property ladder more challenging.

A recent study conducted by CoreLogic and the Australian National University (ANU) found that low-income employees can afford only 17.6% of the available housing stock across the country. This comes as home prices continue to soar and first home buyer activity continues to dwindle.

Middle- and high-income earners, meanwhile, can afford 57.1% and 85.1% of the listed properties across Australia, respectively.

To come up with the figures, the study used household incomes modelled by ANU researchers, consisting of low (25th percentile), middle (50th percentile), and high (75th percentile) incomes, which amounted to respective weekly estimates of $905, $1,654, and $2,760.

Using these numbers, the researchers then made an estimate of borrowing capacity based on a 30-year loan term with 2.44% interest rate and monthly repayments based on 30% share of income. A 20% deposit was then added to the borrowing capacity to determine the affordable price points for each income level, which were $376,041 for low-, $685,723 for middle-, and $1,144,715 for high-income earners.

Sydney and Melbourne remain the least affordable housing markets for low-income earners, with only 2.9% and 4.2% of the listed properties considered attainable. Darwin (62.1%), Brisbane (26.7%), and Perth (25%), on the other hand, topped the list of most affordable cities.

Who are Australia’s low-income earners?

Among the job categories that fall closest to the research’s lowest tier are hospital porters earning $956 a week, supermarket checkout operators with a weekly wage of $962, and cleaners with weekly earnings of $975, according to data obtained by Realestate.com.au.

Primary school teachers ($1,611), paramedics ($1,434), registered nurses ($1,411), entry-level police officers ($1,212), wait staff ($1,154), and childcare workers ($1,063) are among those in the middle tier. The property website also noted that most of those in the lowest and middle tiers are essential workers who are heavily relied upon during the pandemic.

If you are wondering which suburbs in the country you can afford to buy a house in, our location mortgage calculator can give you options.

Can you take out a home loan with a low income?

While there is no minimum income requirement when applying for a home loan, it can still be tricky for many low-income earners to have their mortgages approved. However, if you are earning a lower-than-average income, there are certain steps you can take to improve your chances of securing a home loan.

1. Prove you can afford the monthly repayments

One of the most important things to consider when buying a house is how much mortgage you can reasonably afford to pay off. This is because knowing how much you can allocate to your monthly repayments very often spells the difference between living comfortably and struggling to make ends meet.

Expert opinion varies on the exact amount, but the consensus is you should have enough left over to meet other financial obligations after making a home loan payment. Many lenders and mortgage experts adhere to the 28% limit – meaning your monthly mortgage repayments should not exceed 28% of your gross monthly income or the amount you earn before taxes are deducted. This percentage also puts you below the mortgage stress threshold of 30%.

2. Save for a deposit

Given your financial circumstances, this may be easier said than done. Saving for a deposit is often the most challenging step before getting on the property ladder as the amount, typically pegged at 20% of the property’s value, can easily reach six figures – especially with current home prices on the rise. But if through hard work, commitment, and financial discipline you are able to overcome this barrier, you may also see your chances of getting your loan approved significantly increase.

3. Find a loan guarantor

If you are struggling to come up with sufficient funds for a deposit, a family member may be able to you secure a home loan by acting as a guarantor. A home loan guarantor is an immediate family member, often a parent or a sibling – although uncles and aunts are allowed in some instances – who has agreed to take responsibility for paying the loan if you fail to make repayments.

Guarantors may also be asked to offer equity from their properties as security for the home loan. Some lenders offer guarantor loans of up to 105% of the property’s value to cover for additional expenses such as stamp duty and application fees.

4. Take advantage of government grants

If you are a first-time home buyer, you can also take advantage of several state-based incentives to cover for the cost of a deposit. These include the First Home Owners Grant (FHOG), which is one-off cash grant given to first home buyers who are either purchasing an existing property or constructing a new house, and the First Home Super Saver Scheme (FHSS), which allows first home buyers to withdraw a portion of their extra super contributions and use it as a deposit for their first home.

Another government incentive, the First Home Loan Deposit Scheme (FHLDS), enables FHBs to purchase a property for as little as 5% deposit without having to pay lenders’ mortgage insurance. The program is limited to 10,000 borrowers in a given financial year, although the government opened an additional 10,000 spots for eligible buyers for the 2020/21 financial year.

These cash grants can be used on top of each other. The big question, however, is if the amount you can raise is enough for a deposit, given the monetary limits to these subsidies.

5. Explore non-traditional options

Some specialist lenders provide 100% home loans to clients, but these usually come with very strict eligibility criteria and higher interest rates because of the risks involved. You can also apply for loans with a loan-to-value ratio (LVR) of 95%, where you need to come up with a 5% deposit. However, you may still need to pay LMI for this type of loans.