Not everyone has a fixed salaried employment, which poses a challenge for banks to assess your loan eligibility. This is especially true in a casual employment and gig economy scenario. That is where an experienced mortgage broker can help you with your loan application.
We have Better Business 2021 Editor’s Choice Mortgage Broker, Kristin Tunbridge together with Managing Director of Rise High, Marissa Schulze discussing how your employment type can affect your home loan or investment property loan application.
Employment Type and Loan Applications
Banks are interested in 2 things when considering a loan application – the security (property) and your ability to pay the loan instalments. Your employment type and income relates to the latter. Besides the number on how much you earn, the bank also looks at:
- your job stability
- the nature of the industry you are employed in
- the length of time you have been in the current job
- your experience in your profession (affecting how likely it is for you to find a new job if you lose the current one)
PAYG vs Self Employment
If you are an employee, then you are considered to be a PAYG applicant. PAYG employment can come in many forms and we will look at each in some detail.
The best chance of getting a loan approved is having this type of employment. This is more true if you have job stability, longer industry experience and been in the role for an extended period.
Some jobs will have a base wage, plus overtime, bonuses or commissions. Different banks and lenders will have different policies on how they consider such irregular income. Some will take the average over a number of years, while some might consider it the norm for your industry and accept is as part of the loan risk.
A casual employment arrangement is common in the hospitality, construction, health industry and others. Banks will still provide home loans and property investment loans to casual employees, but it comes down to your mortgage broker’s experience and knowledge about which banks look upon casual employment more favourably than others (and not penalise you with higher interest rates), and what are the information and documents you need to prepare for your loan application as a casual employee.
Some of the factors banks will look at for casual employees include:
- the time you have been in your job
- the consistency of hours made available to you
- your experience in the industry
- any gaps between jobs
What if I am still on probation?
A lot of clients we met thought that it would be impossible to apply for a loan while they are still on probation in their new job. That is not true and some banks now do consider providing loans to applicants in their probabtion period. An application is likely to be approved if you have been in the same industry and just moved to a different company, if there are no gaps between your employment, and so on. Speak to a Rise High mortgage broker so you will know what will work best for your situation.
Some industries like education and government positions are offered on a contract basis. For applicants on contract, banks will consider the contract term left, the industry you are in, whether have you been repeatedly offered a new contract, experience in the industry, etc. A professional mortgage broker will work with you to give your loan application the best chance of approval.
Self Employed Applicants
If you run your own business, work as a freelancer or a contractor, then you are considered to be self employed.
Most banks will require that you show at least 2 years of tax returns which you have lodged to the ATO. If there is a huge variance between reported incomes, then you will need to provide an explanation to the bank. Most banks will then generally assess this on a case by case basis.
More consideration is now provided to self-employed applicants who can’t meet the typicat requirements for a self-employed loan application. This is a result of the loan provider market maturing. These banks and lenders will consider situations such as:
- having less than 2 years of income tax returns, but can demonstrate extended industry experience
- using BAS or bank statements to assess year-to-date (YTD) income
- accepting letters from your accountant about your business
For such applications the lender will generally apply a higher interest rate, or provide a lesser loan amount as a percentage of your security (property you are going to purchase), meaning you will need to have a larger deposit.
Everyone’s situation is different, so talk to a mortgage broker to work out what is best
With all the different bank assessment criteria, and variances in your individual circumstances, it will be best for you to work with a knowledgeable and dedicated mortgage broker to find the most suitable loan product for you for your home purchase.
Our award-winning Rise High team of brokers do not charge a fee for our services, so it will only cost you time to have a chat with us about how you can submit the best loan application despite your employment type. We also check in with you on your home ownership or property investment goals. This so that we can help you achieve the goals soone and in a more cost-efficient manner. That is why we have been awarded National Finance Broker of the year in 4 out of the last 5 years by the Mortgage & Finance Association of Australia (MFAA).
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The best chance of getting a loan approved is having this type of employment.