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How to get a home loan if you’re a casual worker
Low doc home loans are the most common type of home loans for casual workers.
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It's harder to get a home loan as a casual worker because lenders consider borrowers with casual incomes to be "higher risk". This is not always the case in reality, but all lenders create policies based around their risk perceptions. Some banks and lenders have friendlier policies towards casual works, and for the most part, the most common home loan option for casual workers is a low doc home loan.
Let's explore how these loans work and how to improve your chances of being approved for a home loan as a casual worker.
How does a home loan for a casual employee work?
If you're a casual worker applying for a home loan, you'll need to show that you've been working steadily by providing the last 2 years' worth of ATO Notice of Assessments.
From there, the lender will often take the lesser of the 2, and consider that to be an indication of your income. By taking a conservative approach and accepting the lower amount as your regular income, they can make sure they are meeting their legal responsbility of ensuring you can afford the loan.
If you have not been with the same job for several years, it can be more difficult demonstrating proof of consistent income. Ongoing employment in the same industry can help. For instance, if you've had 2 casual jobs in the last 3 years, but they both involved working in hospitality, that can help provide evidence of consistency in employment to the bank.
The most common type of home loan for casual workers is a low doc home loan, which is a mortgage that is designed for the self-employed or those who receives an irregular income, rather than a consistent PAYG income. These types of loans are considered to be riskier than a regular home loan, so they often charge slightly higher interest rates. In some cases, lenders may apply a lower maximum LVR, which means they require you to save a larger deposit.
Restaurant worker Jafar applies for a low doc home loan
Our hypothetical borrower Jafar has worked as a casual worker in the same industry for 3 years and wanted to apply for a home loan. He had $40,000 in savings, and has been able to comfortable cover the cost of his rent and monthly expenses with his income.
The lender he chose looked at his gross income and felt confident that he could afford monthly repayments of around $1600 a month.
This allows Jafar to borrow $350,000 at an interest rate of 2.5% for 30 years. He qualifies for a stamp duty exemption, because he's a first home buyer.
Comparing mortgages for casual workers
Consider the following when applying for your loan:
- Documentation. You don’t need as much documentation with a low doc loan as you would with a full documentation loan, but the more income evidence you can provide, the better. Any income you receive cash in hand won't be considered as genuine income – you need a paper trail as income evidence.
- Interest rate. If the bank considers you to be a riskier borrower, they may charge a slightly higher interest rate than PAYG borrowers. This could be a small price to pay in order to buy your own home; make sure you shop around for the best deal.
- Loan type. You should consider whether the flexibility of a variable rate or the certainty of a fixed rate is better suited to your circumstances. Some loans will allow you to split your loan into variable and fixed rate portions.
- Features. Check the list of features being offered and try to find the ones that will be most beneficial to you. Things to look for might be a 100% offset account, redraw facilities and flexible repayment options.
Pros and cons of a home loan for a casual worker
- Availability. Home loans are available for all types of casual workers, including those with fluctuating hours, freelancers, contracts and locum positions. As long as your income is taxed and you can show proof, then a low doc loan could be suitable.
- Options. You will be able to choose from a number of different lenders who specialise in home loans for casual workers.
- Higher fees and rates. Some lenders may charge you extra fees or higher interest rates for the higher risk they perceive you to have.
- You may need an accountant. Lenders could request the contact details of an accountant to verify your income. If you don’t have an accountant, you may want to consider one just to sort out your documentation.
Try comparing your mortgage options from across the market
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
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