If you’re receiving workers compensation, your home loan dreams could still become a reality.
If you’ve sustained an injury or illness as a result of your job, you could find yourself getting workers compensation payments. This can be a stressful and emotionally difficult experience, particularly if you had been planning on buying a home.
However, receiving workers comp doesn’t have to derail your home ownership ambitions. Many lenders are still willing to accept workers compensation as a form of income, provided you meet certain criteria.
The amount you can borrow depends on your circumstances
Depending on the nature of your compensation payments, you could be eligible to borrow up to 95% of the value of the property you’re buying.
Generally, in order to borrow this amount, your compensation will have to be permanent for up to five years.
If you’re on temporary payments, you may still be able to borrow up to 90% of the value of the property you’re buying. Lenders will assess your situation on a case-by-case basis and is usually contingent on your return to work. Lenders will often accept temporary payments if you’re returning to work in less than two months and can provide a letter from your employer stating your return date.
If you’re receiving payments from income protection insurance, you’re also likely to be assessed on a case-by-case basis. Some lenders will accept 100% of income protection insurance payments as a valid form of income, while some will only accept up to 50%. Likewise, some lenders are happy to accept lump-sum payments of insurance protection claims in lieu of ongoing payments.
You may need an exit strategy
Whether your compensation is temporary or permanent, you’ll likely need to demonstrate an exit strategy for your home loan.
Some lenders will only offer shorter loan terms to borrowers on workers comp payments. This is because workers comp payments often cease after a pre-determined period of time. If you’re nearing retirement, or if your payments are scheduled to cease at a pre-determined time, you may need to work with a financial adviser to craft an exit strategy. This will demonstrate that you can pay off your home loan.
Temporary compensation is tougher
As a general rule, it’s more difficult to get approved for a home loan if your workers comp payments are temporary. Lenders are more likely to approve your loan if your payments are set to last up to at least five years.
However, if you are on temporary payments, there’s still a chance you could be approved for a home loan. Temporary payments are assessed on a case-by-case basis, and lenders will take into account the nature of the injury or illness that has put you out of work.
Payments must be ongoing
In order to be approved for a home loan, your workers comp payments, whether temporary or permanent, must be ongoing. This means if you’re in a dispute with your employer’s insurance company and your payments have ceased, you won’t be approved. If your employer’s insurance has denied liability, you’ll need to go through the process of challenging this decision and then have your payments resume before you apply for a home loan.
You’ll need to provide adequate evidence
Like any other form of income, lenders will want to see evidence of your payments. If you’re receiving workers compensation payments, you’ll have to provide specific documents to help your lender verify the amount you receive, and that payments are ongoing.
Depending on the lender, you may have to provide the following:
- A letter from your workers compensation scheme stating the term and amount of the payments.
- A doctor’s certificate.
- A letter from your employer confirming your position is open for you to return.
- Income documents prior to your injury, including payslips or group certificates.
Being sidelined by an injury or illness can be a traumatic experience. But with the right lender, the right circumstances and the right documentation, your property dreams don’t need to be put out to pasture.