Gold Coast resident, Jason asks
“Can you get a home loan with a casual job? I’ve been told that after the GFC this is no longer possible. Is this true or are there lenders that accommodate casual employees?“
Getting a loan as a casual employee isn’t as straightforward as if you were employed full time, or even permanent part-time.
There are several disadvantages to obtaining finance as a casual employee. Firstly, your hours can vary greatly week to week which can have a direct impact on your earnings. This of course is not ideal, especially if your hours are reduced to a point where you’re just covering basic living expenses. In extreme cases, your hours might be removed altogether which can cause you to be in a position of not being able to meet repayments.
Secondly, as a casual employee, you’re not entitled to sick leave or holiday leave. This can become a challenge especially during offseason and during times of extended periods of unforeseen illness.
These are the two main factors that lenders don’t look at casual income in the same light as permanent income.
How is casual employment defined?
Casual employment isn’t defined by a set number of hours, or a minimum amount of hours per week, its simply by definition itself. When seeking finance, most lenders will request payslips to verify your income.
Payslips for people employed on a casual basis usually have no mention of sick, or annual leave. This isn’t always the case as payslips vary between employers, but it can be one way to determine the nature of your employment and whether or not you’re entitled to leave or if you’re hours are consistent.
What about permanent part time?
Permanent part-time is looked at in the same way as permanent full-time income. Unlike casual employment if you’re permanent part-time, you’re basically guaranteed a certain number of hours each week.
Unlike casual employment permanent part time employees are guaranteed a set number of hours per week. Any hours worked in addition to this are regarded as overtime, whereas casual employees, simply receive any hours worked at the regular pay rate.
Of course permanent part time employees still receive annual leave, and sick leave.
What about contracting?
Contracting is common practice within certain industries, such as IT.
Many contractors have an agreed short term contract – 6 or 12 months and typically work at a day rate. Getting finance as a contractor varies between lenders, as each individuals circumstances are usually quite different.
Getting a home loan as a casual employee
One of the main challenges faced for casual employees when seeking finance for a home, (aside from fluctuations in income), is the fact that many lenders require job stability. Most lenders require you to be in a job for at least 12 months. Some lenders accept 6 months.
Here at Mortgage World we do have solutions where you can be in a casual role for as little as 3 months and still be able to get a home loan.
Would a reference help?
Having a reference from your employer is usually recommend but it won’t really change anything if you’ve only been in your current position for 3 months. Lenders instead will look more-so at your actual income over that 3 month period, and then annualize that income.
In other words, income can be verified either via year to date income shown on your payslip, or another way they can do it is by looking at your monthly bank statements and averaging the income out over a period of three months and then annualizing that figure.
How is borrowing capacity impacted for casual employees?
The answer to this is heavily dependent on the lender.
Obviously if you’re only working a small amount of hours each week your borrowing capacity won’t be great.
On the other hand, if you’re working 40 hours a week, full-time hours as a casual, then typically the hourly rate would be much higher than what you might get on a permanent full-time income – and if you’re consistently doing that, then your borrowing power is comparable with a full-time employee.
But, it’s all dependent on the consistency of your income.
Are there any types of casual roles that are looked at more favourably?
The type of work you do doesn’t really matter that much, but what lenders will take into account is experience. What can weigh in your favour is if you’re working in a particular field where you’ve had previous experience in the same sort of role prior to starting your existing job.
For example, it’s not unusual for teachers to be casual.
But even for casual teachers, some lenders may only annualize 40 weeks per year, or 42 weeks per year of income, due to school holiday periods where you wouldn’t be working. Whereas with a regular casual job, say in the retail space where you might be working all year round, lenders might annualize up to 52 weeks worth of income per year.
Are interest rates higher for casual employees?
Interviewer: Okay. I’m guessing that people that apply for finance for a home loan, what are the differences with those loan types, Patrick? Would they have higher interest rates or would they be structured differently because of the employment type?
If you’re a casual employee, you’re still eligible for the same home loans that you would get as a permanent employee, as long as your income is sufficient to qualify for the loan amount. There’s really no difference in terms of the options, rates or fees.
Applying for a home loan as a casual employee
In terms of what’s required to apply for a home loan, the standard application process would apply. Evidence such as payslips and PAYG summaries from the previous year are generally requested, but there are some lenders that can also verify income via bank statements that demonstrate salary credits coming into the account. Most lenders however, will still require payslips and the previous years PAYG summary.
Every lender will calculate income differently. Some will simply annualize the latest payslip, based upon the year to date, as long as there’s at least three months history showing.
Others will do the same, but also compare it to what you earned last year, and maybe take the lower figure. It generally depends on the lender as they all have their own policies and procedures.
Can Mortgage World help me get a loan as a casual employee?
We have access to many different options and many different types of lenders who provide home loans and other lines of finance that are specifically designed for casual employees.
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.