Key Takeaways
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Full-time Permanent Employment
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Full-time permanent employees with regular income and benefits are viewed most positively by lenders. Lenders will ask for proof of employment as well as recent payslips.
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Part-time Permanent Employment
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Part-time employees with a fixed contract are also looked at positively by lenders. To assess home loan eligibility, lenders may look at how long the borrower has been employed and how much they earn.
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Casual Employment
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Casual employees don't have fixed contracts and are hired without being assigned regular work. It may be challenging to get approved for a home loan from traditional lenders since this employment type is viewed as higher risk, but if the borrower demonstrates regularity of income and longevity of employment, home loan approval can be achieved.
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Contract Employment
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For contract workers, lenders may look at the length of the current contract and the borrower's history of contract renewal. Multiple contracts within the same industry may also be viewed favourably.
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Self-Employed Individuals
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Self-employed individuals like sole traders may be reviewed more thoroughly by lenders to assess their business's financial health. Some lenders may want to see years of financial records and tax returns to establish a clear picture of stability and viability whereas others can be ok with an accountant’s letter to declare income..
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Enhancing Your Loan Eligibility Regardless of Employment Type
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Regardless of your employment type, you can take steps to make yourself more eligible for a home loan. These steps include improving your credit score, reducing your debt-to-income ratio, saving for a larger deposit, and maintaining your employment. It's also crucial to choose the right lender that can give you the terms you need for your situation.
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Employment is one of the first things lenders look at when assessing a borrower’s capacity to consistently pay back loans. There’s no question that the more stable your employment is, the more likely you are to get approved with better terms and higher loan amounts. However, that doesn’t mean that part-time or contract workers can’t get home loans.
Many lenders approve mortgage applications from borrowers of differing employment types, provided that they can prove their financial capability. Here’s how lenders typically assess home loan eligibility for various employment types:
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Home Loan Eligibility Based on Employment Type
Full-time Permanent Employment
Full-time employees are employed permanently and work an average of 38 hours a week. These types of employees are often considered the lowest risk by lenders because of their steady income and job security. This is especially true if the employees have been working for the same employer and within the same industry for a long time.
For home loan applications, lenders will request recent payslips, employment contracts, and sometimes confirmation from the employer. Lenders will consider the full salary amount and benefits when assessing the borrower’s financial capacity.
Part-time Permanent Employment
Part-time employees work less than 38 hours a week, but they often have regular hours and schedules and work under a fixed contract. Permanent part-time employment is also looked favourably upon by lenders. As part of the approval process, lenders will scrutinise work experience and longevity as well as the overall income.
Casual Employment
A casual employee is someone hired by an employer without a commitment to a solid and ongoing work pattern. This means casual employees have no set weekly hours and only get called in depending on the employer’s needs. They can also accept or refuse shifts depending on their preference.
For casual employees, lenders examine the regularity of their income as well as how long they’ve worked with an employer. Although casual employment can be perceived as higher risk, some lenders still provide loans, taking into account that casual positions often pay higher hourly rates to compensate for the lack of benefits and job security.
Contract Employment
Contract employees work under a fixed-term contract that will end at a set time. For contractors, lenders consider the length of the current contract and any previous contracts. A history of continuous contract renewal or multiple contracts in the same field can be beneficial since they demonstrate income stability.
Self-Employed Individuals
A self-employed individual is either a sole trader or a freelancer. Self-employed individuals may undergo a more rigorous review process, including assessment of business financial statements, tax returns, and the business’s financial stability. Some lenders may require a few years of financial records to establish a clear picture of stability and business viability. If the business and its industry are stable, the chances of getting approved are higher.
Enhancing Your Loan Eligibility Regardless of Employment Type
Regardless of your employment type, you can take certain steps to improve your eligibility in the eyes of home loan providers. These steps involve presenting yourself as a low-risk borrower and demonstrating your financial capability. Here are some strategies that can help:
Improve Your Credit Score
Always pay your bills and existing loans on time. Late payments can negatively affect your credit score. Try to avoid actions that can lower your score, such as closing down credit credit cards. Regularly review your credit reports for any errors and be ready to dispute any inaccuracies you find.
Reduce Your Debt-to-Income (DTI) Ratio
The DTI is a measure used by lenders when assessing home loan applications. It’s a way to ensure that borrowers have a reasonable amount of debt compared to their income, thus making them capable of taking on a new loan. Borrowers can reduce their DTI by paying down existing debts, especially high-interest credit card debts. Borrowers can also find ways to boost their income, whether through overtime, a second job, or a side business.
Save for a Larger Deposit
A larger deposit means you’re borrowing less, which is less risk for the lender. It also demonstrates strong financial discipline and commitment to investing in the property.
Maintain Stable Employment
Regardless of what type of employee you are, a stable job history will be viewed more positively by lenders. Ideally, you should show longevity in your industry and your workplace. If possible, avoid changing jobs or quitting before applying for a loan.
Choose the Right Lender
Not all lenders have the same criteria. Some might be more flexible or have specific products tailored to your employment type. If you’re not a permanent employee, explore other lenders, especially non-bank ones to find terms suited to your situation.
Talk to a Mortgage Professional
If you’re not a permanent employee, it may be intimidating to apply for a home loan. Even though some lenders have strict criteria, you can still get approved as long as you can prove that you have a stable income. To know more about your options, reach out to loan experts like Dark Horse Financial.
