Bankstown resident, Julia asks
“I’m currently on maternity leave and my husband and I wish to purchase a property. My bank has told me we won’t qualify until I return to work, are there any lenders that can help us before I return to work?“
Fantastic question sent in by Julia, and this is no doubt is a concern for a lot of new mum’s or mum’s to be. Here’s what may be possible with respect to securing a home loan during maternity leave.
There are selected lenders who have flexible home loan policies and will consider the return to work income for applicants that are on maternity leave at the time of making application.
If you were working in a permanent role prior to maternity leave and you are returning to work on a specific date in the future there are lenders that may consider your return to work income.
You will generally need to supply a letter from your employer advising the exact date that you are returning to work and the conditions related to your return to work. That is, are you going back as full-time or part time and what is the gross income that you will be returning on. Your lender will use this information to calculate your serviceability.
There are some conditions that need to be met. Lenders have a responsibility under the National Consumer Credit Protection Act to ensure that borrowers can afford the loan repayments during the entire period of the loan, including during periods where your income is reduced. The lender will require evidence that you can afford the repayments while on maternity leave and look for an amount of savings held in your account to cover the serviceability shortfall during your absence from work.
What factors do banks and lenders take into consideration when including paid maternity leave
Regardless of whether you have taken 6 or 12 months maternity leave, a lender will use the letter from your employer to determine your eligibility for the loan. The key criteria is:
- Your return to work income and the other household income earned by your partner must be sufficient to service the loan amount requested
- The lender will also do a serviceability assessment without your income. Whatever the resulting shortfall is per month needs to be met by savings. For example, an applicant who has taken 12-month maternity leave may have no income coming in for the last 6 months of that leave. As a result of this say there is a $2,000 a month short fall in serviceability, a lender would require a minimum of $12,000 in savings. How this is calculated is very simple. The $2,000 shortfall multiplied by 6 months totals $12,000. This is to ensure you can afford to make the loan repayments during that period where the income coming into the household is lower than normal.
If you have some supplementary income coming into the household during the period of maternity leave, such as paid maternity leave, paid parental leave from the government or holiday pay, this can reduce the amount of surplus savings the lender will require you to hold. For example, if you receive $4,000 of income during that 6 months of absence instead of requiring $12,000 in savings you may only need $8,000.
In the past lenders could not consider potential return to work income when an applicant was on maternity leave even if the applicant would return to work on a very high income. Lenders are now more flexible and open to considering applications from applicants on maternity leave.
Common mistakes to avoid when it comes to this type of lending
If you’re looking to buy a property whilst on maternity leave it’s imperative that you secure pre-approval first, the last thing you want to do is buy a property and find out that you are unable to secure the finance you need. It is a common misconception that lenders will automatically consider a mothers’ return to work income while on maternity leave so getting pre-approval before making any commitments to buying a property would be wise.
Even if you have significant savings to get through the period of maternity leave, getting a pre-approval is still very important.
If you are purchasing a property while on maternity leave you would also need sufficient funds to cover the required deposit and purchase costs such as stamp duty.
Every lender will have their own lending criteria and while some may not consider temporary income at all, some may be flexible others may be more restrictive and require the applicant to be returning to work within a certain period perhaps 3 months. There is no blanket rule and each lender with have their own affordability calculator and eligibility criteria.
In summary if you are currently on maternity leave and considering a loan application during this time a few key points to remember are
- You should have sufficient savings in cash to cover the period of maternity leave.
- Request an employment letter stating return to work date, period off work and return to work income.
- If possible prepare a higher than normal house deposit. A 20% deposit is best if possible.
- Prepare documentary evidence of temporary income such as paid parental leave, employer paid maternity leave or holiday leave pay.
- Get pre-approval before making a purchase commitment.
Ready to work with us?
If have any questions talk to us today, we look forward to discussing options for you and your family.
Patrick is a Director and a Home Loan Specialist. He has been helping Australians with home loans since 2001. Prior to working as a mortgage broker Patrick was employed by Macquarie Bank for 3 years and also worked as an accountant for a publicly listed company. Patrick holds a Bachelor of Business majoring in Accounting and sub-majoring in Finance and Marketing from University of Technology, Sydney.