- It's possible to qualify for a home loan while you're on maternity leave
- You may have to supply your lender with additional information on your planned return to work date and future employment plans
- Different lenders will have different policies covering maternity and parental leave
- Be prepared that having children can affect your borrowing power
Buying a house and having a family often go hand-in-hand. But can you be approved for a home loan when you're on maternity leave? The short answer is yes, you can, but the long answer is a little more nuanced.
Applying for a home loan on maternity leave: What do lenders consider?
When you apply for a home loan, lenders routinely examine your income, any existing debt, and expenses to assess what's known as your borrowing power.
If you're receiving maternity leave payments, these will generally be treated as income. It is against the law to discriminate against someone on the basis of their parental status but, that said, lenders will assess home loan applications according to individual circumstances.
They may ask for additional information so they can be satisfied you'll be able to meet home loan repayments in the future, including:
- proof of your previous income, such as pay slips or previous income tax documents
- a letter from your employer confirming your intended return to work date and salary
- evidence of employer/government support you'll be receiving during your leave period
If you’re taking unpaid parental leave or plan to when your paid leave period is over, you’ll be obliged to disclose this to your lender, and they can take this into account.
See also: Parental Leave Pay (Services Australia)
Maternity leave policies by lender
Most of the major banks don't have a specific maternity leave policy, saying they assess each application on a case-by-case basis.
Westpac and NAB make it clear they take into account parental leave payments and your expected salary when you return to work. However, of the lenders who advertise their parental leave policies, many do it on the basis the parent taking leave will return to work within 12 months.
Ultimately, it is up to individual lenders to decide who they will lend to based on responsible lending guidelines and their own policies. At the end of the day, lenders will need to be satisfied you will be able to make future loan repayments so it's best to be prepared for requests for additional information.
Ways to strengthen your home loan application on maternity leave
Despite the hurdles maternity leave can present to home loan approval, there are ways you can strengthen your application and increase your chances of being approved:
Apply with a partner
One way to strengthen your application is to make a joint application with another person that has secure employment and a stable income. The ability to service the loan on just one income can be a powerful factor in your favour.
Borrow less
Another way you could increase your chances of approval is to borrow less. This may mean looking for a more modest home or buying in a different area. Your lender may be more inclined to approve your application if you’re borrowing within your means at the time you apply - even if you could afford to borrow more under normal circumstances.
See also: Do children impact your borrowing power?
Save more
Though you may be desperate to move into a new family home, it may be helpful to save for a bit longer to have a larger deposit in hand. The standard home loan deposit is generally set at 20% - otherwise, you will need to pay lenders mortgage insurance (LMI) which can cost tens of thousands of dollars.
Of course, this strategy will depend on what's happening in the property market at the time you're looking to buy. If you deem time to be of the essence in avoiding steep price rises, you may want to consider the next strategy.
Sell/downsize other assets
To put as much towards your home deposit as possible, you may want to downgrade your car/s for cheaper models, sell any other investments you may be holding, or cash in the equity on any other property you may have.
Have your return-to-work date
Your lender will consider your return-to-work date when processing your application. Knowing this in advance will help them calculate whether you can manage your mortgage repayments via other means (single income, savings, etc.) until you return to work.
Have a supporting letter from your employer ready
Another handy trick to improve your application is to get your employer to write a letter stating how long you’ll be on maternity leave, what they’ll be paying you during this time, and what your salary/wages will be when you return to work. This is another way to assure your lender that you have a job to return to and allow them to be clearer on your future financial position.
Find the right lender
Simply put, different lenders have different policies on parental leave scenarios. Shop around for a lender willing to consider your circumstances and be honest with them. The table below features some of the most competitive interest rates on the market and may be a good place to start:
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
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Savings.com.au's two cents
Applying for a home loan while you're on maternity leave may not be ideal but that certainly doesn't mean you won't be approved for one.
It's always best to be upfront with your lender about your situation. That includes telling them:
- if you're pregnant
- when you plan to take parental leave
- how long you expect to be on leave for
- your payments - both government and any employer contributions - during this time
- any unpaid leave you may plan to take after your paid leave period
Things may always change, but allowing your lender be clear on your current circumstances and future plans will ultimately help you avoid taking on a home loan you may not be able to repay in the near future.
How to apply for a home loan on maternity leave
Applying for a mortgage on maternity leave may require a few more steps than usual. You’ll need to provide all the normal documents outlining all of your income (payslips, bank statements, etc.), assets, liabilities, living expenses, and so on. In addition to these documents, you may also need to provide the following:
Payslips for the three months before going maternity leave
Proof and estimates of your expenses during your time off including any healthcare costs, childcare, and general living expenses
A letter from your employer with the terms of your maternity leave, your employment status (full-time, part-time, casual) and the date you're expected to return to work
Applying for a home loan while pregnant
If you're not on maternity leave yet but are pregnant and planning to be taking maternity leave in the near future, it's best to disclose this.
Technically, a lender can’t ask you about your pregnancy as this could be considered discriminatory. However, they need to do their due diligence and ensure you can manage your loan repayments, so instead they will ask you if your circumstances are set to change in the near future. The answer to this should be ‘yes’ - especially if you’re planning on taking unpaid maternity leave.
At the end of the day, your lender wants to make sure you can reasonably manage your home loan repayments - for your benefit and their own.
If you’re going to let your lender know that you’re pregnant, it may be helpful to have the same information ready as you would when applying for loan on maternity leave. Let them know when you’ll be returning to your job, how much you’ll be getting in payments on parental leave, and demonstrate how you can service the loan in the meantime.
What happens if I am struggling to repay my home loan while I'm on maternity leave?
Government-funded parental leave payments are based on the minimum wage so if you, or your partner, had been earning more before taking leave, your household income will likely take a hit - unless your partner has been able to pick up the slack. (This can be difficult given new babies can require an all-hands-on-deck approach, particularly in the early days.)
Some banks, such as Westpac and NAB, have stated policies on how they can reduce your home loan repayments during parental leave periods if required. But all lenders are required by law to consider temporary or short-term arrangements for borrowers experiencing financial hardship.
Some options you may be offered include:
- making interest-only repayments (see Savings.com.au interest-only calculator)
- a repayment holiday (usually only a short-term move to suspend your repayments until your situation returns to normal)
- refinancing your home loan to a lower rate or longer term to reduce your repayments (this needs to be considered against the cost of any fees incurred)
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