Coopers Plains resident, Nihal asks
“My bank declined my home loan application since I only recently started a new job. Can you help?“
While not common there are lenders that will consider applicants that have been employed in a new job for as little as one day or who have been employed or taken up a new role or job in the short term.
Typically, when changing jobs, you will serve a probation or trial period of 3-6 months, and many lenders will not consider applicants that are on probation.
Typically, a lender would request proof of the first payslip, and in some instances an employment letter will suffice as it can be supplied straight away. Although the eligibility and application process for this type of lending is becoming more onerous it may be possible to borrow up to 95% of the purchase price based on proof of the first payslip. This application would be made with a mainstream lender, paying normal interest rates and fees.
Do Lenders take into account previous employment?
Previous stable and long service employment weighs in your favour and lenders will consider what industry and role you previously for-filled. Typically, a person would go from one job to another in the same industry which is perfectly fine. Transferring roles from say a truck driver to an IT specialist may require that those probation periods are met.
Lenders also look favourably upon a change in employment where there is no intermission longer than a month between jobs.
Employment inconsistency or “job hopping’ can be detrimental particularly in credit scoring. Most lenders have an internal credit scoring system where factors such as the number of jobs you’ve retained over a certain period, how often you change address and what’s reflected on your credit report all have an impact of your internal credit score. These factors could affect your likelihood of being approved.
In some industries such as IT, it is not uncommon for borrowers to frequently change jobs particularly those that work under a contract arrangement. A PAYG contractor may be employed on one project for 6 months and then on another for 6 months this is the typical nature of contracting and a lender will usually be aware of this type of employment arrangement.
Does age matter?
A borrowers age and the commencement of a new job do have considerations and under the NCCP Act lenders are obliged to ensure that borrowers can afford the loan repayments for the entire loan term. What this means is that lenders are looking for an exit plan so either the loan term needs to be in line with your projected retirement age, for example, if you’re 65 and you’re planning on retiring at 75 some lenders will consider a 10-year loan term however it is still possible to have a 30-year loan term if you’re aged 65 provided you have an exit plan.
This might be that you have sufficient assets to extinguish the debt when you retire. For example, a borrower may have multiple properties with sufficient equity in it, and the exit plan may be that you are planning on selling an investment property to pay out existing debts.
Lenders prefer not to use superannuation as an exit plan particularly if they’re using all your superannuation to pay out a debt. Some borrowers have a significant amount of superannuation that can be considered as an exit plan or other financial assets like shares and asset funds. Another exit plan that some lenders may consider it downsizing, so for example, if you’re aged 65 and you own a five-bedroom, $2,500,000 property and you only owe a couple of hundred thousand on it then it’s fair and reasonable to suggest that you could sell upon retirement and invest in a cheaper smaller home to achieve a debt-free status.
While not stereotypical, there are a lot of younger people in this particular position, someone who might be looking to buy their first home and perhaps they’ve just started work. Younger borrowers tend to be looking to find their feet in terms of employment and typically do change jobs more frequently, and a new job may coincide with the opportunity to purchase a home.
If you’re planning on investing in a property and the possibility exists that you may change jobs our best advice would be, if at all possible stay with the job you are currently in until the home loan has been approved. If you make an application when you have retained a new job or position for less than 3 months, limits the options of flexible lenders available to you.
So, in summary, a few key points to remember when changing jobs that coincides with applying for a home loan
- Only a select few lenders will consider applicants who have been employed or taken up a new role or job in the short term and are still under probation our advice is to stick with your current job until your application has been approved.
- Prepare your first proof of payslip and an employment letter these are the first documents that a lender will request.
- Previous consistent employment weighs in your favour and lenders will consider your stability based on previous positions and duration held.
- It may be possible to borrow up to 95% of the purchase price based on proof of the first payslip.
- Employment inconsistency or “job hopping’ can be detrimental particularly for your credit score and lenders do check this.
- If you are an older applicant, your loan term needs to be in line with your projected retirement age or lenders will look for an exit plan
- Lenders prefer not to use superannuation as an exit plan
Give us a call
Call us today if you have any questions we can help you through the application process– we look forward to working with you!
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.