Without traditional employment, you may struggle to prove your income when applying for a home loan. Find out what you need to know about getting a home loan as a contractor, someone with multiple income sources, a self-employed individual, temp worker, or anyone else who has an income but who doesn’t fit the traditional borrower mould.
The Challenge of Finding the Right Lender
If you work a normal nine to five job and receive a regular salary from an employer, your lender won’t have any trouble verifying your income and assessing your ability to repay your mortgage.
On the other hand, if your income is a little more complex – you may work temporarily for different businesses through a temp agency, some of your income may come from bonuses or overtime, or you may have a fluctuating income by week or by season – proving your income won’t be as straightforward as looking at your paystubs and tax returns.
Which means you may need to provide various other documents or apply for a low doc loan. And, more importantly, you’ll want to apply with a lender who will consider the nuances of your situation and who is willing to take a flexible approach to assessing your job type and income.
What Non-Traditional Types of Employment Can Qualify for a Home Loan?
Just because you aren’t a traditional worker, you still earn an income. With other factors such as a high asset ratio, a large deposit, and good credit, your employment type shouldn’t stand in the way of being able to qualify for a competitive home loan. What types of non-traditional employment will some lenders accept?
With any of the following types of employment, you may still be able to qualify for a home loan:
Rental income: For property investors, some or all of your income may come from your rental properties. You’ll need to provide proof of your rental income in relation to your expenses as a property owner but there are plenty of lenders who are comfortable lending to borrowers with rental income.
Commission, bonuses, and overtime: When a significant part of your income comes from sources outside of your normal base salary, you’re still earning this money. And, it's often as a direct product of your hard work. Some professions, like nurses, police officers, and other shift workers rely heavily on overtime pay for their income. For those in sales, commissions can make up a large portion of your income. It’s important to know which lenders will include these extra types of income when assessing your loan serviceability so you can qualify for a loan based on what you earn, not just your base salary.
Self-employed: Whether you are a sole trader or a business owner with employees, you may want to apply with a lender that will assess your BAS statements and business bank statements to help confirm your income. You can also use a low doc loan if you don’t have two years’ worth of tax returns.
Contract workers: As a contract worker, you may not have a predictable income, which can be unsettling for lenders. Learn which lenders regularly offer loans to contract workers and what you can do to increase your chance of qualifying by talking to a mortgage broker.
Temp agency workers: This most challenging part of qualifying for a home loan as a temp worker is the fact that you work for different employers. Even though you may have worked through the same agency for years, banks may focus more on the fact that you haven’t worked for the same company for the past two years. However, there are lenders that are comfortable lending to the temp workforce.
Casual or varied employment: What if you work part-time at one job, earn an income on the side from your hobby or craft, and take on seasonal work? Find out which lenders will take the time to look at complex situations like this to fully understand your income.
Call us on (07) 3146 5732 or contact us here to speak to one of our mortgage specialists.
What Is the Lender’s Perspective on Income Verification?
When you apply for a home loan, chances are, the loan is for a lot of money and you’ll be repaying it over a long period of time. It’s the responsibility of the bank to verify that you’ll be able to repay the entire loan. If they don’t do their due diligence, they’ll lose out. They also have to uphold certain standards to comply with banking regulations in Australia.
Look at it this way. If a bank issues a mortgage and the borrower defaults, they’ll lose money. Even with the property as a security, it still costs money to sell that property. Also, the bank isn’t likely to get the full price on a sale.
Not only is a mortgage default a financial drain. It also reflects poorly on the bank’s reputation.
This is why lenders expect a high degree of certainty when assessing your ability to repay your loan. If you don’t have a stable job, your income changes, or there are any other factors that indicate you won’t have the same income or higher over the course of your loan, it’s the bank’s job to ask for the proper documents to ensure you can repay the loan. Some lenders, especially the major banks, won’t take the time to look at alternative documents or to understand the details of your employment in the first place. Which means you won’t qualify for a loan simply because verifying your income is too difficult or doesn’t offer enough certainty.
Unless you have documentation to give a loan assessor the verification they need – according to that lender’s specific policies – you may not get the loan you are after. You may have high income and be able to afford the loan but you need appropriate documentation to prove it.
It’s in your interest to know what you can use to verify your income and how to increase your chances of qualifying.
What Documents Can Verify Your Income?
When applying for your loan, you’ll need documentation to show how you can earn the income amount you put on your application. This can include:
- A letter from your employer
- Bank statements
- BAS statements
- Official accountant’s letter declaring income
Just keep in mind, you may need to apply for a low doc loan if you don’t have the right documentation for a lender’s standard full doc loan, which usually includes two years’ worth of tax returns and income records.
Call us on (07) 3146 5732 or contact us here if you think you’ll have trouble verifying your income. We know which lenders are more understanding of non-traditional employment and who offer competitive low doc loans.
Banks Care About More Than Income When It Comes to Assessing Employment
To qualify for a home loan, banks want to see that you have a high enough income but they also want to see employment stability.
- The longer you’ve worked for an employer or have been in a job role, the better. Ideally, your current employment has been the same for two years or more, although some lenders will consider applicants with 12 months of consistent employment history.
- The length of time in your industry also matters. For example, if you have worked in the hospitality industry for ten years but recently changed jobs, a lot of lenders will still view you as having stable employment. This is because, with years of experience in a field, lenders know you can always find a new job if the current one doesn’t work out in the long-term.
- Banks prefer full-time employment status. This can make it difficult for people who only work part-time or who do casual work. If you scaled back your work hours to take on more parental duties or to go back to school, for example, find out what lenders are willing to look at your whole employment picture rather than denying your application because you aren’t currently a full-time worker.
- Lenders also look at the industry you work in. Statistically, borrowers in certain fields are more likely to default than others. For example, builders are a higher risk than accountants.
- If part of your income is unstable, some lenders won’t assess it at all, making it difficult to qualify for the loan you want.
There are a lot of lenders that regularly lend to borrowers with non-traditional employment. Especially now, where a significant part of the Australian workforce is either self-employed, works for a temp agency, or works on a freelance basis, more lenders are taking the time to assess different employment scenarios.
Qualifying for a Home Loan
If you are concerned about your employment history, we encourage you to contact us for a free assessment and to learn more about the options you do have. Our mortgage brokers are familiar with the specific qualifications and assessment criteria each lender will consider. We also can help you prepare the right documents and present them to the lender you apply with. Call (07) 3146 5732 or contact us online to find out how we can help you find the right home loan for you.