It is not uncommon for families while the mother is on Maternity Leave to look at a change of scenery with making a home or investment property purchase or even refinance current debt for that matter. As many people find themselves in this situation now days unfortunately there are a number of lenders who will decline the loan application as they see this as a risk that you may not return to your previous job role and might only go back to restricted hours. However there are alternatives for lenders who are actually accepting in these situations and are able to get around this, but there will be some requirements that will need to be met to satisfy the lenders requests along with specific documentation that the lender will generally request throughout the process respective to the application in progress. It is best to talk your qualified mortgage broker about your options and what is available to you.
What do the lenders take into consideration?
When a loan application is put forward with a lender, some of the key things they will need to consider when assessing lending to mothers who will be staying at home with a newborn child are:
- The length of time until the mother returns to work
- The ability to cover the loan repayments while on leave
- Estimated expenses over the said time period
- Cash/savings that is set aside pretty much to have on standby should funds need to be used.
- Any equity funds available in the home
- Any Government benefits being received throughout the duration of leave.
- The duration of the maternity leave
In most cases with lenders the maximum leave they will consider is 12 months, however smaller periods such as 6 months or 18 weeks are looked upon more favourably. If when talking to your mortgage broker it is clear that you are going to struggle to afford the loan repayments while on leave you will be advised of this, as the bank will not approve your application due to responsible lending practices in place.
Types of Maternity Leave
Paid Maternity Leave
Paid Maternity Leave is the more favourable of the two options from a lender perspective as you do receive some form of income for a set amount of time. With saying this if you are only receiving income for part of your leave the lenders will not be able to assess your income based on your normal annual salary until you were to return to the workforce.
Unpaid Maternity Leave
Unpaid Maternity Leave in many cases is looked at and treated essentially like unemployment by most lenders regardless of your return to work date, estimated hours upon return and projected income. Because of this they will not be able to properly assess your situation until you have returned to work and can provide evidence of income. However there are some alternative lenders who will consider unpaid Maternity Leave so don’t hesitate to talk with your mortgage broker to find out if you have options.
What documentation do I need to provide?
Lenders will request that you supply evidence of your ongoing employment and income once you return back in to the workforce. Some of the things you may be required to provide are:
- Payslips from the last 3 months prior to commencing parental leave.
- Most recent PAYG Summary/Group Certificate
- A letter from your employer stating the terms of the parental leave:
- The date leave started
- Evidence of income if being paid while on leave and for how long
- Expected return date
- Expected employment type i.e. full time, part time or casual
- Expected hours per week
- Pay rate
How much can I borrow while on Maternity Leave?
As a general rule to go by you wouldn’t want to exceed an 80% Loan to Value Ratio whether you are carrying out a mortgage refinance or making a property purchase as this will mean you are not in Lender’s Mortgage Insurance territory therefore it is one less party involved and less questions asked or conditions to be met. The purpose of the loan for a property purchase can be for Owner Occupied or for an Investment Purchase.
If you have any queries or a question regarding specific information around making a property purchase or refinancing while on Maternity Leave talk to your mortgage broker Gerry and he will be able to assist with answering any questions and providing a review of your situation.