Even if your income fluctuates due to casual employment you can still qualify for a home loan in Australia. Here's how.
There are a range of specialist and regular lenders in the Australian market who can provide loans to those who work on a casual basis. While many lenders consider casual employees too big a risk due to their fluctuating income, this is not always the case, and there are ways for a casual employee to obtain a home loan just like any other gainfully employed Australian, usually through a low doc home loan.
A low doc home loan is a mortgage that is designed for the self employed or someone who receives an irregular income and can’t prove it through normal means. However, these types of loans are considered to be of a higher risk than the regular home loan, and so higher rates and in some cases lower maximum LVRs (the amount you can borrow in relation to the property's purchase price or value) can apply.
Speak to a mortgage broker to help find a home loan for you
Mortgage brokers are home loans experts who can help those with casual employment to find a home loan which suits them. They have access to a range of lenders, so can compare home loans on your behalf to find the best option for you. Mortgage brokers generally earn a commission from your lender, which means the service is free to you. You can compare mortgage brokers below. If you'd like to read more about a broker, click 'Details', and if you'd like to lodge an enquiry click 'Enquire'. Your broker will contact you back within one business day.
How does a home loan for a casual employee work?
If you're a casual worker applying for a home loan you'll most likely need to show that you've been working steadily by providing the last two years group certificates. From there, the lender will likely take the lesser of the two and deem that to be your income. If you have not been with the same job for several years you may have a more difficult time providing proof of income.
In this case, some lenders may use your year to date (YTD) income and calculate what your yearly income would be. This method will only be used by lenders who are willing to extend a mortgage to a casual worker who has not been under the same employment for a significant amount of time.
John applies for a low doc home loan
John has worked as a casual worker in the same industry for 3 years and thought he was ready to apply for a home loan. He had $10,000 in savings and was able to 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 $810 a month.
This allowed John to borrow $150,000 at an interest rate of 4.94% for 30 years. Since this was a variable rate loan that also included fees, he chose to buy a smaller home and borrow only $135,000. This allowed him to make his repayments promptly without having to worry when his income fluctuated down.
Comparing mortgages for casual workers
Even though your income criteria may be different than that of other borrowers, you generally still have the same opportunity to apply for many of the same loan products as someone with a more steady form of employment. Consider these options when choosing your loan:
- Documentation required. As mentioned before, you don’t need as much documentation with a low doc loan as you would with a full documentation loan. The lender will ask for the minimum, but you’re still required to meet that standard.
- Interest rate. The special circumstances of your home loan application may encourage banks to offer you the home loan at a higher interest rate than other borrowers. Check to see the rates they display online compared to what is being offered to you at a branch, and always ask for a discount.
- Fees. Look carefully at the fees for home loans and try to find one that charges fees which justify the features and interest rates.
- Interest 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, permanent positions, freelancers, casual nurses and teachers. 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.
- Flexibility. Having access to a typical home loan will help you set up your terms and repayments to work best with your fluctuating income.
- 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.
What are the risks?
- Applying for too many home loans. Do your research before you begin to apply for home loans when you are a casual worker. Applying for many and being rejected will have a negative impact on your credit history. Before filling out an application make sure that they accept applicants with your employment type.
- Affordability. Ensure that you are able to afford the terms of your home loan before making a commitment to it.
Frequently asked questions about home loans for casual workers
How will my income be calculated?
Depending on the length of time you have been with the same employer will determine this. Some lenders will take the lesser of two years worth of group certificates while others may make calculations based on your YTD salary.
How much can I borrow?
This will be entirely dependent on your income and the value of the property you are trying to buy. You can use our borrowing power calculator to help you figure this out.
Which lenders offer home loans to casual workers?
Because each lender is different, regular and non-conforming lenders offer these home loans. All lenders will evaluate applications from casual workers on a case-by-case basis, so a mortgage broker can be a good option, as they will know from past experience which lenders are more suited to casual workers.
How likely is it that I will get a loan while having a casual job?
There are a range of lenders and products available for casual workers, and while nothing is certain, a prospective lender will look at your income, employment history and credit file when deciding whether or not you'd be eligible for a home loan. In addition, a mortgage broker will also have knowledge about which lenders to approach to maximise your chances of approval.
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