Now that your baby is just a few months away, looking for a home loan that fits well with the upcoming lifestyle changes can be quite an overwhelming experience. The good news is that you can initiate the process by getting yourself pre-approved before applying for the mortgage once the baby arrives.
However, a couple of factors may slow down the process. For example, it’s a known fact that some lenders have mixed reactions about offering loans to new parents, even if they are eligible for government support such as Parenting Payments and Parental Leave Pay.
Here are a few things to consider and help you plan this out such that you can sail through the application and secure the best deal possible for your new home.
What Lenders Consider
To get an idea about the prospective home loan seeker’s financial status and borrowing capacity, lenders consider your income, expenses, liabilities and assets. If you are expecting a baby and are on maternity leave, you may be viewed as a potential risk, especially since - being on leave - you may not be working at that time.
You will need to ease their concerns and sufficiently prove that having an extra member to care for will not impact your repayment capacity and that you will be able to meet your mortgage obligations during this period.
At the same time, you needn’t feel disheartened and lose hope about securing a home loan. This is when your savings, and other sources of income, such as investments and rental properties, can turn the tide in your favour. Also, if you are applying for the loan jointly with another person, this can be a significant advantage and boost your overall chances of getting the loan approved.
A word of caution here is that the final status of your home loan application all depends on the procedures and policies of the banks or lenders and their assessment of your financial situation. Considering that you are on maternity leave, you continue to be a high-risk borrower for some lenders, and they will outright dismiss your case for a home loan.
How to Boost Home Loan Application While On Maternity Leave
Now that you know the odds, here are some ways to work around them and build a strong case for approval while on your maternity leave:
- Scale down the amount to be borrowed: You will gain from reducing the amount you plan to borrow, for starters. Sure, you may have to settle for a less fancy home, but that may work in your favour with the lender. Moreover, if you are perceived to be borrowing within limits – even if you probably could afford a bigger loan - your lender may view your application more favourably.
- Proof of employment and return-to-work schedule: Having your employer confirm in writing about your employment status, leave duration, and salary status when on leave and return to work is a great way to shore up confidence in your lender. This assures that you will not have any hassles meeting your loan repayment commitments after maternity leave once you get back to work.
- Keep your return date schedule while filing your application: The lender would need these details to calculate your repayment capacity, i.e., how you will service your mortgage repayments through investments, savings, etc., until the proposed date of getting back on the job. Keeping these details readily available will optimise your borrowing prospects and minimise your risk as a borrower at the same time.
- Try to avoid going solo: Another strategy that works well is to apply for the loan with another person employed jointly. This certainly strengthens your application as the lender is reassured at any given time during your maternity leave that your co-applicant has a steady source of income that can be used for paying the mortgage. Again, this improves the credibility of your application, despite your reduced income.
- Show good savings: You could consider postponing your desire to move into the new home in the short term. Build up your savings to pay up the hefty home loan deposits. The standard deposits are generally in the range of 20%. Or else, you will have to incur even costlier Lenders Mortgage Insurance (LMI). At the same time, study the expected property price gains during this extra time you use to save the deposit amount.
What You Need to Support Support Your Home Loan Application
The application process may be a bit more tedious than usual. While you will need to furnish all the regular documents such as bank statements, assets, liabilities, etc., these additional documents will need to be kept ready.
- Your payslips for the three months before going on maternity leave
- Estimates and proof of expenses during your maternity leave, including general expenses, childcare, healthcare and bills of any other notable expenses.
- Your employer’s letter clearly stating the terms of employment status, your maternity leave, and the proposed date of your return to work.
Since, at present, there aren’t any specific home loan products tailored for those on maternity, do a thorough check of your lender’s terms and conditions to ensure that your interests are covered too. Most banks and lenders have customised their maternity leave home loan policies. While some lenders, such as Westpac and Commonwealth Bank, offer specific policies in this segment, you will often have to submit your application, like the others.
Your lender will assess your application, consider your leave status and its impact on your income and repayment capacity, and adhere to guidelines to ensure that you get the best possible home loan deal.
Can You Apply for a Home Loan When Pregnant?
If you have recently gotten pregnant and are expecting a baby, your lender can’t ask you about your pregnancy or maternity leave, as this could be considered discriminatory. At the same time, they will pursue due diligence to ensure you can repay your loan.
If asked about the possibility of your circumstances changing in the near future, your answer to this question should be ‘yes’, especially if you plan to be on unpaid maternity leave. Although you are under no compulsion to reveal your pregnancy or maternity plan leave, it is advisable to do so that your lender can leverage a deal that works best for both. And if you plan to reveal that you are pregnant, have the information (discussed earlier in the article) ready.
It may be a bit more challenging to get a home loan when on maternity leave, and the uncertainties may make the lenders reject your application.
If you’re serious about it, do wait back a few months and apply once you get back to work, as this dramatically improves your chances of home loan approval, not to mention the additional time you get to build a corpus of savings.
Finally, if you still decide to go in for a home loan, we trust the tips we’ve shared come in handy to create a sturdy application that’s hard to refuse. To ensure you’re fully prepared for your application, check out our guide on how to apply for a home loan.