If you're on parental leave, you're technically still employed. So it shouldn't be an issue getting your home loan application approved, right?
Each lender has their own lending criteria. And for many, seeing "parental leave" on a mortgage application would make you a high-risk borrower. So it can be a lot harder to get a home loan in this situation.
This applies even if you receive supplemental government benefits like Parental Leave Pay.
But don't give up hope just yet. There are ways you can still get a mortgage while on parental leave — keep reading to find out how!
Can you get a mortgage while on parental leave?
It's possible to get a home loan while on parental leave. But, it can be harder because lenders do not view your break from work as a positive point regarding your eligibility as a borrower.
However, there are ways to strengthen your odds of getting approved, which we'll cover later in the article.
Does maternity leave affect borrowing power?
Yes, maternity or paternity leave can affect your borrowing power when applying for a home loan. This is especially so if you're on unpaid maternity leave. Check your buying power with the OwnHome Buying Power Calculator.
When you apply for a home loan, lenders essentially want to know that you can make your monthly repayments.
When they see "maternity leave" on your application, it's taken as a risk to your income.
They worry your job security is on the line. Or that if you're a first-time mum, you might decide not to return to work.
Even if they do approve your application, you might not be given the best mortgage terms (e.g. higher interest rates).
However, that's not the end of the story. There are ways to prove to your lender that you are and will remain in good financial standing.
How to get a home loan while on maternity leave?
The steps for applying for a home loan are the same whether you're on maternity leave or not.
Firstly, your lender must assess your financial situation to see if you and your partner can service your requested loan amount.
They will mainly look at three things:
If you're on parental leave, here is some additional information they'll need from you:
Details about your employment and parental leave. This includes:
- Information about your leave period
- Whether you're working full-time or part-time
- Whether you're on unpaid or paid parental leave
- Proof of your return-to-work date
In addition to your usual daily living expenses, they'll also consider anticipated increases in your spending (e.g. childcare, added costs of having a dependent).
How to improve your chances of getting a home loan while on parental leave
There are certain steps you can take to improve your eligibility for a home loan while on parental leave. This includes:
- Grow your savings, borrow less: Building up a sizable deposit (at least 20%) will allow you to borrow less and help strengthen your application.
- Borrow with another person: Having a co-applicant who has a steady source of income will help reassure the lender that together, you both will have enough to make your home loan repayments.
- Show that your job is secure: Demonstrate that you have a clear return date or return schedule along. Also, indicate how much your salary will be during this period and when you're back in the office. You could ask your employer to write a letter supporting this information in your application too.
The lowdown: Should I apply for a home loan while on parental leave?
In general, it might be wiser to wait till you're back at work to apply for a home loan in Australia. While you're still on maternity leave, you'd be deemed a high-risk borrower in the eyes of the lender, which could affect whether your application gets approved.
However, this doesn't mean it's impossible, and there are things you can do to improve your chances of securing a mortgage.
In a nutshell, you must demonstrate that you have a healthy financial history (and future).
Things like having a clear plan for your return to work and showing steady income (this could be from other sources like investments, too) will help to reassure lenders you are capable of paying back your loan.
With a little preparation and persistence, you could be well on your way to owning your new home while celebrating the arrival of your little one!