Have you recently accepted your dream job and are now eyeing your dream home?
I don’t mean to burst your bubble, but the nature of your work could have a big impact on your chances of securing a home loan.
Many lenders and financial institutions often require a potential borrower to hold their current job for a minimum of six to 12 months (and pass their probationary period), before a home loan application can even be considered.
It’s because lenders must be certain borrowers have a reliable source of income. Even if a borrower has recently accepted a job role with a bigger paycheck, many lenders may push them back, opting for those with longer job tenure and associated stability that indicates reliability of income.
On top of this, the longer you hold a job, the more complicated it becomes for an employer to let you go.
Although this may seem confronting, don't panic. Here are a few ways you may be able to get around this.
Are you self-employed?
If you’ve started your own business and are classified as “self-employed”, your application may be viewed differently than an employee of an external business or organisation.
For example, if you have a job with an employer, a lender will only require your personal financial position to make a lending decision. However, when you work for yourself, your lender will also consider your business’ financial position.
If you can demonstrate to your lender that you’re a safe investment for them, it’s likely that you’ll be in a better position to get your home loan application approved.
In order to do so, there a few basic paperwork requirements you should prepare:
Two years of company tax returns
Two years of other financial statements (such as profit and loss statements)
Two years of personal tax returns
Date of ABN and GST registration
If you’ve only just started your own business in an industry you’ve been working in for a while such as starting your own design agency as an experienced architect, you can apply for what’s known as a “low doc loan”. This special consideration takes into account whether you’ve been in the same line of work for many years and have the associated long term experience, network and acumen to be successful, even if your books are relatively limited and fresh.
It’s important to remember not all lenders will accept low doc loans, and it's at the lender’s discretion to decide the outcome of your loan application. Some lenders might also consider taking the wage from your last traditional job into account. If they think your business could fail, they will rely on the idea that you will go back to a job that earns similar money to what you previously earned.
Have you stayed in the same industry?
Whether or not you have stayed in the same career or industry can have an impact on your eligibility for a home loan.
If you can prove you’ve been in the same line of work for a long period of time, but have just moved between agencies or companies, some lenders might trust that you’re able to secure a similar, if not higher payslip and thus have the ability to afford a home loan.
You should also consider the volatility of your industry. If you switch from a more stable industry to a job in a less stable industry (such as a banker to an artist), this might cause issues with some lenders.
They may also consider the risk associated with your industry.
For example, if your job is vulnerable to closures due to COVID-19 lockdowns, banks may demonstrate a reluctance to approve your loan. Australians in the beauty, hospitality and service based industries who cannot work from home have experienced this first-hand.
How frequently do you change jobs?
If you’ve been loyal to your previous employer for a long period of time and can demonstrate a stable career track record, there’s a good chance your lender will believe any move to a new job to take advantage of better compensation or working conditions.
This also means that during these previous employment opportunities, you’ve been able to successfully climb the corporate ladder and accumulate significant wealth.
When people chop and change jobs frequently, this can often sound alarm bells for a lender, causing them to question your ability to hold down a job and consequently the stable income that comes with it. Whether you got fired, terminated during your probationary period, or quit after only a short tenure, your lender might be hesitant to even consider your application.
If you have gaps in your employment history, you can still be eligible, but you must be able to prove that your income is sufficient and ongoing, and you have a good reason for the gaps.
It’s essential to remember that not all lenders are this strict and depending on your personal circumstances, newer providers like neobanks or non-bank lenders are often willing to reconsider their criteria and tailor their product to suit you. It’s all a matter of choosing the right lender.