Forums / Getting Technical / Finance / Can you get a home loan while on maternity leave?

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  • Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    If you’re reading this and about to go on maternity leave (or are already on it) – congrats! It’s an exciting time.

    We get quite a lot of new enquiries from clients who have just been declined from their current lender due to being on maternity leave.

    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.

    From the lenders perspective, some will argue that there’s no guarantee the client will return to the workforce and therefore the application is considered high risk.

    The good news is that some lenders are more receptive to lending to clients on maternity leave. They won’t simply base their assessment on your current financial situation (which usually involves a period of reduced household income) but will also look at your borrowing capacity based on your return to work income.

    Providing you have enough savings (or other liquid assets such as shares) to cover any shortfall in income during the period of maternity leave – some banks will take into account your return to work income when assessing your borrowing capacity.

    How long can you be on maternity leave for? From the banks perspective – it’s generally a maximum period of 12 months but the shorter the period the more favourably the application will be looked at.

    What do you need to show the bank? It’s the same requirements as any other application – you need to provide payslips as well as a letter from your employer stating the terms of your maternity leave, your return to work date, tenure when you return (part time or full time) and the salary you will earn. You will also need to show proof of savings/assets.

    What’s the maximum Loan to Value Ratio (LVR) you can borrow up to? As a general rule – it’s best to aim to borrow no more than 80% of the property’s value. Technically it’s possible to go beyond 80% (up to 90%) – but when mortgage insurance is involved, it adds a further layer of scrutiny to the application.

    Does the purchase have to be for an owner occupied property or can it be for an investment? It can be for either. We’ve had loans approved for both.

    With all that said – it’s hugely important that the borrower is comfortable with taking on additional debt. Whilst the thought of a new home, investment property or upgrading is exciting – overstretching yourself and ending up in financial hardship isn’t! So whilst the bank might be willing to provide you with a loan it’s important that you’ve also crunched the household budget and are reasonably certain that you can afford to take on the additional debt.

    When crunching the numbers, it’s important to base your loan repayments on a higher rate (around the 7% mark) so you can be confident that you’ll be able to meet your repayments when rates eventually start heading back up. Also factor in expenses relating to your new bub – they can be very expensive!

    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.

    I hope this helps.

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of JerryJerry
    Participant
    @jerry_o
    Join Date: 2013
    Post Count: 46

    Excellent post as always Jamie.

    Jerry | Mortgage Station
    http://mortgagestation.com.au/
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    Finance Strategist - Active Investor - Serving clients Australia-wide - Based in Sydney / Melbourne

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Good post Jamie. It’s something which is definitely becoming more popular – just had a maternity leave deal approved this afternoon, another being submitted this morning.

    Thankfully the banks are becoming more and more warm to the concept and having specific policy to cater for the reality of the situation.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    More and more are coming on-board. ANZ kicked it off and now Westpac, St George and others are joining in.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

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