Two of the most important decisions in a person's life are starting a family and purchasing a home. Both need careful planning, to say the least – especially when they are set to happen at nearly the same time.
For many of these buyers, it can be difficult to find a lender who will be open-minded enough to give them a loan while they are on maternity leave.
From the banks' perspective, borrowers on maternal leave are considered high risks, given that they will only receive minimal income for a certain period of time. There is also a chance that they will leave their employment for good, making banks hesitant to let them borrow funds to finance their homes.
If you are one of these home buyers, here are some of the things you have to know to make sure that you can still avail yourself of a home loan while on maternity leave.
What are the chances of you getting a home loan?
While most banks and lenders have strict regulations and limitations on their mortgage products, there are some which will be able to accommodate expecting or soon-to-be-parents.
Just like a regular mortgage application, you can borrow as much as 80%, or 90% in some cases, of the total value of the property if you meet the eligibility criteria. Of course, the rule of thumb is to borrow below 80% of your home's value if possible, as to avoid having to pay for mortgage insurance.
The banks will be assessing your income, assets, and liabilities to see if you will be able to meet the monthly repayments of the loan. It is important for lenders to know if you will be going into a paid or unpaid maternity leave – the latter will give you a much better chance of approval.
Which documents do you need to prepare?
When applying for a mortgage while on maternity leave, you have to supply your lender with particular documents to prove that you are capable of making repayments.
Recent payslips from the three months prior to your leave are usually required by banks, as well as a letter from your employer indicating the details of your absence including the date of your anticipated return, your tenure, and income.
You also have to submit documents that would paint a clear picture of the other expenses you have to be responsible for while on leave. This includes utilities, childcare, and healthcare services, among others.
Does the length of your maternity leave matter?
Banks oftentimes consider how long you will be on leave in the approval process of your mortgage. Ideally (from the lender's perspective), your leave should not last over 12 months.
The shorter your leave is, the more likely it is that a bank will approve your loan.
Will it be better to avail of a loan while you are still pregnant?
During the first stages of pregnancy, you will still be able to fulfil your responsibilities at work and will usually still be paid your normal salary.
For the most part, it is actually better to apply for a loan while you are pregnant and working than to do it while you are already on leave. This way, you will be able to utilize the remaining months before you give birth to buff up your finances.
Also, it is definitely better to inform your lender if you are pregnant, given that this would actually result in lifestyle changes that would impact your ability to make mortgage repayments on a monthly basis. They will be able to better serve you if you are honest about things related to your home loan application.
Will you be able to avail of some benefits while on maternal leave?
Some banks and financial institutions offer some features on their mortgage products that would allow you to go on a repayment holiday. This is when you are allowed to take a break from your monthly responsibilities for a period of time. However, to avail this, you should have had your home loan for at least a year.
It should be noted, however, that you might have to pay the rest of your loan within the original term. This means you might have to pay an extra to make up for your missed payments. In such cases, you might have to make extra repayments to act as a buffer.
If you are a first home buyer, be sure to check out the benefits that your state may offer.
What can you do to increase your chances of getting approved?
As banks step up their efforts to regulate mortgage lending in Australia, home buyers need to have a sound financial health.
To increase your chances of getting the green light for your home loan, you really have to have an ample amount of savings before you take your maternal leave. After all, purchasing a home should really not be an impulsive decision but a carefully-planned one.
It is also suggested to consult a mortgage brokers. Applying while on maternal leave is already complicated and you will need the network of these brokers to find the right bank and lending institution which will be receptive of your current conditions.