Getting a home loan on maternity leave
While difficult, it's possible to get a mortgage while you're on maternity leave. Here's what you need to know.
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From a lender's perspective, applying for a home loan while on maternity leave reduces your borrowing power and makes you a riskier applicant because your income is temporarily reduced.
The good news is that some lenders will approve a home loan or a mortgage increase even though you're not receiving a permanent income. You'll just need to show that you can afford the loan, have a realistic borrowing amount and take the time to find a lender that will accept your application.
Tips for applying for a mortgage during maternity leave
The best suggestion is, if possible, to get a home loan before you need to take maternity leave. Once your lender has accepted your application you're in a safer position as long as you keep making repayments.
But sometimes that simply isn't possible. If you can't avoid applying for a home loan while on maternity leave then here are some tips to help you succeed:
- Get documentation from your employer. If you're on paid maternity leave you could strengthen your application with a letter from your employer outlining the terms of your maternity leave including your return date, future employment terms (part time or full time, for example) and your salary upon return.
- Save at least a 20% deposit. It's always harder to borrow more than 80% of a property's value. Having a minimum deposit of 20% will make your application stronger (and you won't have to pay lenders mortgage insurance).
- Set a realistic budget and loan amount. Work out your income and expenses carefully to make sure you're borrowing an affordable amount. Be sure to consider how living on one income during maternity leave will affect your finances too.
- Talk to multiple lenders before applying. Don't submit a full application without checking with a lender first. Some may reject your application once they know you're on maternity leave so be upfront about it. Rejected applications look bad on your credit score.
- Consider talking to a mortgage broker. A mortgage broker has a good sense of which lenders will accept your application and can guide you through the whole process.
What will a lender consider when reviewing my application?
Lenders will typically take into account whether or not you are on paid or unpaid maternity leave as well as your ability to service the mortgage repayments using:
- Assets such as genuine savings or shares
- Equity that you have in existing property
- Government benefits or monetary gifts (if applicable)
Applying for a home loan before taking maternity leave
If you're still working at the time you apply for the home loan then the whole application process will be a lot easier. While your lender has a legal responsibility to ensure you're able to repay the loan they can't knock you back just for being pregnant.
But if you know you'll be out of work soon due to childbirth you have a responsibility to crunch the numbers for yourself and make sure you can repay the loan.
Do the following:
- Look at how much you're hoping to borrow, how much you earn and your other expenses.
- Subtract your income from that calculation. Factor in maternity leave payments too.
- Can you afford repayments in the scenario? Do you have other savings to cover the shortfall?
If the answer is no then you should probably rethink the home loan altogether or borrow a smaller amount. Getting into debt and then immediately missing repayments could be disastrous.
What about taking a repayment holiday if I take maternity leave later?
Some lenders include a repayment holiday feature in certain mortgage products, which allows you to take a break from your repayment responsibilities when you leave the workforce.
Generally, you need to have your home loan for at least 12 months before you can apply for a repayment pause. Enquire with your lender directly to see whether this feature is available.
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