When it comes to maternity leave, there are usually two types – paid and unpaid. If you’re on paid maternity leave, then a lender may consider your application. However, approval will depend on your income, assets, and liability. Plus, you’ll need to prove to the lender that you’re capable of servicing the loan.
The amount that you will be able to borrow will depend on several factors such as:
- Your credit history.
- The assets you own.
- What you owe and other liabilities.
Some lenders will allow you to borrow up to 80% of a property’s value. However, to avoid paying lender’s mortgage insurance (LMI), you should consider borrowing less.
Also, it is important that you consider the cost of raising a child. Then, factor this into the amount that you can comfortably afford to borrow. A baby, on average, will cost around $12,000 in the first year of life. But, expenses escalate as the child becomes older.
To estimate your borrowing power, use a special calculator for this. These calculators are easy to use. Plus, they give you an exact indication of what you can afford, before and after your baby is born.
You also need to be aware that a child reduces the amount you can borrow. Why? Well a lender classifies them as a dependant due to the added expense of raising them.
There are a few documents you’ll need to give to a lender for them to access home loan eligibility. These are:
- Payslips – Your recent pay slips spanning back for 3-months. These need to be before you take maternity leave.
- Employer’s letter – A letter from your employer stating the terms of your maternity leave. This letter must say:
- The name of your employer.
- Your return to work date.
- Salary during the leave.
- Your future employment terms – casual, permanent, full-time, or part-time.
- Your expected wage when you return.
- Childcare estimate – Children cost money to look after. So, your lender will want to know you’ve factored these costs into your expenses. Therefore, you’ll need to know how you’ll cover child care costs when you return to work after leave.
Lenders will want to know the payment terms of your maternity leave, as well as duration of the leave. Typically, lenders will only consider a loan if your leave is for 12-months or less. Other considerations a lender will have are:
- Assets – Genuine savings, shares and other property and investments are all classified as assets. Businesses and vehicles such as the family car, motor bikes and other vehicles are assets.
- Equity – If you own property, your lender will want to know the amount owed on these and the property value. The greater the equity you have in a property, the more likely you’ll gain loan approval.
- Government benefits – Supply a record of any government benefits received. These may include Family Tax. Payments of any kind are income.
- Monetary gifts – When a friend or family member gives a financial gift, then you need to have this documented. The document will need to say the name of the person offering you the gift, the amount of the gift and the date paid.
- Bank statements – A bank statement proves that your able to save. Plus, it supplies your lender with proof of their level of risk. Also, if you plan to go on unpaid leave, a statement proves you have funds to service your loan. Funds include savings, equity or even your partner’s income.
Do you want to know more about a maternity leave home loan? Then contact eChoice, we can help you plan ahead. Plus, our brokers have access to 100’s of home loan products, so we’ll find you the right mortgage.