Borrowing Money When on Maternity Leave

Budgeting For A New Baby

Crowded house and a new baby? You can now borrow on maternity leave

Budgeting For A New Baby

You can now borrow on maternity leave

You can now borrow on maternity leave

Have you recently expanded your family and are now struggling with a house that feels like a shoebox? You’ll be pleased to know that your maternity leave won’t stop you from borrowing money.

 

Until recently, you had to wait until you start back at work before being able to borrow money. Financial institutions assess lending against risk, so you’re less ‘risky’ when receiving a salary. Thankfully, things have progressed and now new parents can gain access to funds for home upgrading or renovation.

 

Unfortunately not all lenders have moved with the times. Some are still in the dark ages, so make sure you talk to your mortgage broker and find out the maternity leave lending policies for each lender.

How do lenders decide if they will lend us money?

 

Some lenders will take into account just the monthly income of the partner who is currently working. They will deduct all your monthly expenses and see what’s left. Usually this is a negative figure, let’s say $500 per month in this case. They then calculate the cost of servicing the loan, on the basis that the other partner has already returned to work. Before doing this however, they will usually request a formal letter from the employer to confirm the hours and salary offered. So long as this secondary servicing calculation is positive, the bank will decide that as a couple, you can afford the property once both partners are at work.

 

How do lenders cover this shortfall in the meantime?

The bank will want to see that you have sufficient savings for the maternity leave period. In the case of a $500 per month shortfall, if the partner is returning to work in six months, the bank would need to see at least $3,000 in savings as a buffer. These funds need to be spare and not committed to the purchase or renovation of a property.

Bear in mind that borrowing on maternity leave is a fairly new development. It’s very hard to get this policy applied if lenders mortgage insurance is required. Therefore it’s only really applicable if you borrow less than 80% of the property value.

 

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