WHAT TO EXPECT… WHEN YOU’RE EXPECTING
If you’ve decided to start a family and you’d like to move into a larger place – Congratulations! It’s an exciting time. The last thing you need to worry about is whether or not a lender will approve your home loan application while on maternity leave.
Getting a mortgage while on maternity leave can be tricky. Maternity leave affects mortgage applications because most lenders will assume the applicant’s income will decrease when they go on maternity leave.
From the lender’s perspective, approving a maternity leave home loan represents a large risk, as you most likely will be receiving minimal income for a period of time and there is a chance that you may not return to the workforce.
Over the past few months we have had a number of clients on unpaid maternity leave who have been declined home loan finance from their broker or bank. Their bank or broker has advised them that they need to return to work first before they will consider lending to them.
It’s a frustrating situation – some have been saving up a deposit for a long time and are excited about finally purchasing a home. Others have decided it’s time to upgrade into something larger to accommodate the growing family – or simply want to release some equity to pay for renovations.
It’s not all bad though. Some lenders will approve a home loan or a mortgage increase even though you’re not receiving a permanent income. You just need to work with your broker to uncover who they are. You’ll also need to undergo an income, assets and liability assessment with the lender to demonstrate that you are capable of servicing the loan.
Required Documents
Almost all lenders will require you to produce evidence of your income, employment, and the terms of your maternity leave. Your application may require:
Payslips from the 3 months before beginning maternity leave.
A letter from your employer outlining the conditions of your maternity leave, including your scheduled return date, and whether your leave is paid or unpaid.
As well as the required documents, lenders will take into account the following factors:
The Duration of your Maternity Leave
Most lenders will not approve your home loan application while you’re on maternity leave for over 12 months. Leave lasting 6 months or 18 weeks is more favourable.
Your Financial Situation
While lenders consider the duration of your maternity leave, the also consider other means with which you can cover your home loan repayments, including:
- Equity in your home
- Government benefits
- Savings
Whether your Maternity Leave is Paid or Unpaid
If your maternity leave is paid, you will have a greater chance of securing a home loan. The issue here is that paid maternity leave is often half you’re your usual salary. Lenders will judge your application based on your maternity leave salary, not your normal salary.
If your maternity leave is unpaid, your application is less likely to be approved. Most lenders will view your loan application as if you’re unemployed, regardless of whether you have a date to return to work.
Top 5 tips : applying for a mortgage when pregnant
- Find the right lender
- Explain your circumstances
- Assess your own savings
- Think about your return to work
- Factor in childcare costs
All in all, being on maternity leave doesn’t preclude you from borrowing. It’s just a matter of working with a lender that’s policies are conducive to your requirements and presenting the strongest application you can. Contact Mitesh for a FREE no obligation home loan consultation on 03 8390 5855 or email mitesh@thinkandgrowfinance.com.au