Add CategoryCasual employees may face stricter lending standards, but they’re certainly not locked out of the mortgage market.
The good news is the Great Australian Dream is open to all - even casual workers. While some lenders may consider casual employees to be riskier borrowers than those with a regular 9-5, there are still opportunities for casual workers to take out a mortgage and purchase their own properties.
The latest figures from the Australian Bureau of Statistics (ABS) shows there are around 2.7 million casual workers in Australia, about a fifth of all employees. Casual work takes many different forms but generally, casual employees are not guaranteed regular hours of work, are not eligible for paid leave, and can be terminated from their jobs without notice. This can understandably make some lenders reluctant to lend.
However, some casuals may have regular hours but have never been offered a permanent role. Others may have worked for an employer for some time but choose to remain a casual employee for the flexibility and generally higher pay rate it may offer. Australia’s hospitality and retail sectors employ many employees on a casual basis.
So, if you are a casual worker aspiring to own your own home, don’t be daunted by the prospect of finding a home loan. Here’s a useful guide to help you apply for a home loan as a casual worker and give you the best chance of receiving a lender’s stamp of approval.
What type of home loans can casual workers apply for?
A low doc (standing for low documentation) loan can be a good avenue for casual workers seeking a home loan. These are generally loans designed for people who may not be able to provide two years of tax returns or other financial records showing stable income as required for traditional home loans.
Such loans can be a good option for casual workers as they generally offer more flexibility for borrowers who may not have regular income streams. Low doc loan applications still require proof of income but will consider individual circumstances and alternative documents to those required by other lenders. However, there is a drawback. Low doc loans are typically subject to higher interest rates, as they are considered riskier than regular loans.
Casual workers may also be eligible for other types of loans if they have a guarantor or are in a relatively strong financial position. A good credit rating can also boost your chances of qualifying for other loans.
Lenders who offer low doc home loans
The table below features some of the lowest-rate low doc home loans on the market right now
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.09% p.a. | 6.10% p.a. | $2,421 | Principal & Interest | Variable | $0 | $498 | 80% | |||||||||
6.54% p.a. | 6.54% p.a. | $2,539 | Principal & Interest | Variable | $0 | $0 | 60% | |||||||||
6.94% p.a. | 7.31% p.a. | $2,645 | Principal & Interest | Variable | $395 | $200 | 90% | |||||||||
7.89% p.a. | 7.92% p.a. | $2,904 | Principal & Interest | Variable | $15 | $1,110 | 75% | |||||||||
8.04% p.a. | 8.30% p.a. | $2,946 | Principal & Interest | Variable | $15 | $995 | 85% | |||||||||
9.42% p.a. | 9.55% p.a. | $3,140 | Interest-only | Variable | $8 | $600 | 80% |
Important Information and Comparison Rate Warning
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .
How much can casual workers borrow?
While you may be able to purchase a home with as little as 10% deposit, the same as other borrowers, some lenders may apply lower loan-to-value ratios (LVR) for loans to casual workers. In practical terms, this means you may need to have a larger deposit to qualify for the loan.
As a general rule of thumb: aim to borrow 80% or less of the total home value. This will also help you avoid paying Lenders Mortgage Insurance (LMI), an insurance you must pay on behalf of the lender in case you are unable to meet your loan repayments. This can add considerably to the cost of your loan.
How do lenders assess casual workers' home loan applications?
While most lenders will require you to be working at your current position for a minimum of one year, others may be more flexible and will accept six, or even three, months at your present employment. Depending on the lender, casual workers may also be required to prove they are working regularly by providing evidence of their hours, income, and previous earnings. It is wise to have such documentation prepared before you apply for your home loan.
In assessing your capacity to meet monthly mortgage repayments, some lenders may use your lowest annual income in the last two years to determine how much you can borrow. If you’re yet to work a year in your current position, some lenders may use your year-to-date gross income to project what your annual income will be.
Some lenders may also ‘annualise’ the income of casual workers. This can apply to casual teachers, for example, who get paid for the 40 weeks they work during the school year but not for school holidays. How casual income is assessed differs between lenders.
How easy is it for casual workers to apply for a home loan?
There are a number of products catering for different employment models on home loan market. These are specifically designed for borrowers with irregular employment, covering freelancers, self-employed contractors, as well as those with permanent casual positions.
This gives casually employed borrowers some options to consider and a degree of flexibility in negotiating with lenders about the terms and conditions that will work best for their situation.
What are some of the disadvantages casual workers face in applying for a home loan?
Lenders generally regard loans to casual workers as higher risk. Unfortunately, this can mean higher loan fees and interest rates than those on home loans aimed at traditional wage and salary earners.
Another downside is the need to be very specific in submitting your income to your lender. You may need to seek the services of an accountant to help you meet proof of income requirements. Some lenders may even want to contact your accountant directly to verify your income.
Some lenders may also require a letter from an employer or employment agency outlining your current employment and how long it is expected to last.
Useful tips in applying for a home loan under casual employment
Organise your documents
It always pays to have your documents in order. Research what documentation is likely to be required by lenders and have it prepared before you begin the application process.
Optimise your credit score
A good credit rating can significantly boost your chances of securing a home loan, particularly as a casual worker. There are several ways to increase your credit score before you apply for a loan. The first is to reduce or pay off any existing debt. It pays to review and address your current financial commitments before applying to take on another one.
Compare interest rates
Be mindful of jumping the gun without researching what’s available on the market, especially in terms of interest rates. Be clear about what mortgage products are likely to be available to you and choose one that best meets your specific needs. If there are opportunities to seek a reduction or discount on any fees or charges, never hesitate to ask. You will also need to consider whether it’s best for you to seek a variable or a fixed rate mortgage.
Keep in mind the fees associated with the loan
Loans for casual workers may come with additional fees and costs. Make provision for them in the cost of establishing your home loan and always ask what specific fees are for.
Seek professional advice
Mortgage brokers may be able to assist you in finding the right mortgage product for your purposes. They generally have access to a wide range of lenders as well as specialist knowledge of what products are available on the market to meet suit circumstances. Most brokers earn commissions from lenders, meaning there is generally no direct cost to you for their services.
Photo by Ian Harber on Unsplash