Getting a home loan while on maternity leave can be tricky, but it’s not impossible.
Most lenders will consider you a high-risk borrower if you’re going on maternity leave. As a result, some of them will wait until you have returned to work for at least one pay cycle before they agree to factor your income towards the mortgage repayments.
However, in some cases, it’s still possible to obtain a home loan approval while you are on maternity leave, providing you can demonstrate:
- The maternity leave is for a defined period;
- You have sufficient savings or other income sources to be able to afford the repayments for the period of maternity leave.
You’ll need to submit the usual home loan documentation, plus some extra information. This will likely include:
- A letter from your employer confirming your exact return-to-work date, the terms of your employment (i.e., part-time, full-time), what income you’ll return and your income during your leave period. In most cases, this period should be no longer than 12 months.
- Your last three pay slips before going on parent leave;
- Evidence of how will afford repayments on the home loan during the maternity leave period. This could include:
- Government benefits such as 18 weeks of paid maternity leave – some lenders might not use this as income, but you can use it to show that you can afford repayments during the maternity leave.
- Any additional savings that can be used to assist with repayments.
How Amanda and her partner got their loan approved
Amanda and Evan were looking to purchase their first home in Adelaide. The property they had their eyes on cost $470,000, and they had saved $47,000 for the deposit.
With Amanda’s income of $70,000 per year, their borrowing capacity was up over $700,000, well over what they needed. Still, because Amanda was on maternity leave from her employment, their borrowing capacity decreased to $220,000, and as a consequence, their bank declined their application until Amanda returned to work.
But they weren’t ready to give up on their dream home just yet.
To get their loan approved, Amanda and Evan talked to one of our brokers, who instructed them to gather extra documents to demonstrate they’d be able to service the loan:
- A letter from Amanda’s employer confirming her return-to-work date and what income she would return on. The letter informed Amanda would work 4 days a week on $56,000 a year.
- Evidence that they had sufficient funds to make the repayments until Amanda went back to work, which was about 7 months:
First, Amanda and Evan worked out what the total repayments would be for the seven-month period. On a home loan of $423,000 over 30 years at an interest rate of 3.5%, the repayments would be about $1,900. The total repayments required for seven months was $13,300 (7 x $1,900).
Amanda’s company didn’t offer paid parental leave to their employees. Still, she was eligible for the government-funded parental leave pay, which granted her 18 weeks of parental leave pay at the national minimum wage.
After purchasing their new home and paying deposits, stamp duty and other costs, Evan and Amanda would also have $24,000 left in savings.
Once all these documents were sent to the bank, they approved the loan.
Here for you
If you are looking to apply for a home loan or refinance while on maternity leave, it’s always helpful to speak to an expert. Our mortgage brokers can help outline your options.
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