Moving house with a newborn doesn’t sound ideal, but sometimes life happens. You may need to apply for a mortgage shortly after welcoming your baby - but can you be approved while you’re on maternity leave? The short answer is yes, you can; the long answer is more complicated.
When you’re on maternity leave, your lender might be a bit iffy about approving a home loan. While there are government payments such as Parental Leave Pay and Parenting Payments if you’re eligible, they might not replace all of your normal income. Not to mention that kids are expensive, and having a child can (and will) reduce your borrowing power in the long run.
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Applying for a home loan on maternity leave: Why do lenders care?
When you apply for a home loan, your lender will assess things like your income, expenses, assets, liabilities and so on. What all this really boils down to is what’s known as your borrowing power - as in, how much you can afford to borrow.
If you’re on maternity leave, your borrowing power going to be affected. This is because you’re not (technically) working at the time, which can be seen as a risk in the eyes of a lender. They need to be sure you can reasonably afford to make your mortgage repayments, and having a baby and taking maternity leave can (and probably will) impact your ability to do so.
This doesn’t mean that you can’t get a home loan on maternity leave. Particularly if you have other sources of income (rental properties, other investments), you’re borrowing with another person, and/or you have a significant amount of money saved.
Unfortunately, with some banks or lenders, you simply won’t be able to apply for a home loan on maternity leave. This is because you’re still seen as a high risk borrower due to your reduced income, and the possibility that you may not go back to work. Ultimately, it comes down to the bank or lender, their policies and procedures, and your personal/financial situation as to whether you will be approved.
Ways to strengthen your home loan application on maternity leave
Despite the hurdles maternity leave throws at home loan approval, there are ways you can strengthen your home loan application and increase your chances of being approved.
Apply with a partner
One way to strengthen your application is to apply with another person that is employed at the time. By doing so, there is still one person on the application with a steady, consistent form of income that can be relied on. This may allow you to be seen as less of a risky borrower, even with your reduced income.
Borrow less
Another way you could increase your chances of approval is to borrow less. While you may need to compromise on that expensive home you’ve had your eyes on, your lender may be more inclined to approve your application if you’re borrowing within your means at the time - even if you could normally afford to borrow more.
Save more
Though you may be desperate to move into your new family home ASAP, it could end up being helpful to save for a bit longer to have a heftier deposit ready. The standard home loan deposit is generally considered to be 20% - otherwise, you will need to pay lenders mortgage insurance (LMI) which can cost thousands of dollars. You might also want to weigh up any potential property price gains in the extra time it takes to save for a bigger deposit.
Have your return-to-work date
Your lender will consider your return date when processing your application. Having this handy will allow them to calculate whether you can manage your mortgage repayments by other means (savings, other income, etc.) until you return to the office. This could see you borrowing as much as you could normally afford, while minimising your risk as a borrower.
Have a supporting letter from your employer ready
Another handy trick to improve your application is to get your employer to write you a letter stating how long you’ll be taking off, whether they’ll be paying you during this time (e.g. maybe you have some annual leave saved up), and what your salary/wages will be when you’re back at work. This is another way to assure your lender that you won’t have trouble managing your mortgage repayments once you’re back on your normal income.
How to apply for a home loan on maternity leave
Applying for a mortgage on maternity leave may be slightly more work than usual. You’ll need to provide all the normal documents outlining all of your income (payslips, bank statements), assets, liabilities, living expenses, and so on. In addition to these documents, you may also need to provide the following:
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Payslips for the three months before going maternity leave
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Proof and estimates of your expenses during your time off including any bills, childcare, healthcare and general living costs
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A letter from your employer with the terms of your maternity leave, your employment status (full time, part time, casual) and the date you plan on returning to work
There aren’t any specific ‘maternity leave home loans’ on the market - when applying, you’ll just need to check over the lender's terms and conditions to make sure being on maternity leave isn’t a deal breaker.
Most banks and lenders will have their own policies regarding home loan applications on maternity leave. For example, Westpac has three specific policies: mortgage payment reduction, mortgage repayment pause and parental leave lending.
Otherwise, you’ll need to submit your application as usual. Lenders will assess your application just as they would any other; they just also need to consider your maternity leave and how this affects your income. They must still adhere to responsible lending guidelines - meaning they need to ensure the home loan is right for you.
What about applying while pregnant?
Let’s say you’re not actually on maternity leave yet, but you’re going to be soon - as in, you’re currently pregnant or expecting to welcome a child. Could this affect your home loan application? Well, yes and no.
Technically, a lender can’t ask you about your pregnancy or maternity leave as this could be considered discriminatory under the Equality Act. However, they do need to do their due diligence and ensure you can manage your loan, so they may ask you if your circumstances are set to change in the near future. And the answer to this question should be ‘yes’ - especially if you’re planning on taking unpaid maternity leave.
While you don’t need to tell your lender that you’re pregnant or about to take maternity leave, it may be helpful to do so. 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 on maternity leave. Let them know when you’ll be returning to your job, how much you’ll be paid, and how you can service the loan in the meantime.
Savings.com.au’s two cents
While you can technically get a home loan on maternity leave, it’s likely going to be harder for you to do so. There are a lot of ‘what ifs’ that can make a lender decide it’s not worth the risk, no matter what your salary will be when you return to your job.
If you’re really keen to be a homeowner, it might be wise to wait until you go back to work to apply. This likely gives you the best chances of home loan approva. It also gives you more time to save for a deposit - if you can among all the baby expenses.
But if this isn’t possible, you can do your best to strengthen your application as much as possible. If you’ve got enough savings ready, a partner to apply with, and other income to carry you through - the odds might work in your favour.
Image by Camylla Battani on Unsplash
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