Home Loan While on Parental Leave: How Lenders May Assess Your Income

Can you get a home loan while on parental leave? Yes, in many cases.

Being on parental leave does not automatically mean you cannot qualify for a home loan or refinance. However, lenders may assess your income differently depending on your leave arrangements, expected return-to-work date, employment status, and the lender’s credit policy.

If you are expecting a baby, currently on parental leave, or planning to return to work soon, understanding how your income may be assessed can help you prepare before applying for finance.

Can You Get a Home Loan While on Parental Leave?

Yes. Some lenders may consider an application from a borrower who is currently on parental leave.

The key issue is generally not simply whether you are on leave. Lenders want to understand:

• Whether you remain employed
• Whether your employment is permanent or ongoing
• How much parental leave you are taking
• When you are expected to return to work
• What your income will be when you return
• Whether your income is supported by reliable documentation
• Whether the household can comfortably meet the proposed repayments

Every lender has its own credit policy, so the same application may receive different treatment depending on the lender.

How Do Lenders Assess Income During Parental Leave?

Income assessment can vary significantly between lenders.

Depending on the circumstances, a lender may consider your:

• Pre-parental-leave salary
• Current parental leave payments
• Government parental leave payments
• Employer-paid parental leave
• Expected return-to-work income
• Other ongoing household income

For example, imagine you normally earn $100,000 per year and are currently on parental leave.

If you are returning to your existing employment after your leave, a lender may potentially consider your normal employment income, subject to its policy and the evidence provided.

However, a lender may not simply treat every form of parental leave income as equivalent to your normal salary.

This is why the structure and documentation of your parental leave can make a significant difference.

Returning to Work After Parental Leave

Your expected return-to-work date can be particularly important.

A lender may want evidence showing that you have an ongoing position and intend to return to employment.

Documents that may help include:

• Employer letter confirming your employment
• Confirmation of your parental leave arrangements
• Expected return-to-work date
• Expected salary when you return
• Recent payslips
• Employment contract
• Bank statements where required
• Evidence of parental leave payments

The exact documentation required depends on the lender and the circumstances of your application.

What If You Are Returning Part-Time?

Returning to work part-time can affect borrowing capacity.

For example, you may have previously earned $100,000 working full-time but intend to return on a part-time basis.

If your future income will be lower, the lender may assess your application using the income you are reasonably expected to receive after returning to work rather than simply using your previous full-time salary.

This can reduce borrowing capacity.

However, the outcome depends on the lender’s policy and the evidence available.

What If You Are Still Receiving Parental Leave Pay?

Parental leave pay may be treated differently from normal employment income.

Some lenders may accept certain parental leave payments under specific circumstances, while others may exclude them or only use them for a limited period.

This is important because your payslip or bank statement may show a current income that is very different from your normal employment income.

For example:

Normal salary: $110,000
Current parental leave income: significantly lower
Expected return-to-work salary: $110,000

The lender may need to determine which income is appropriate to use for servicing.

This is where lender selection can become important.

Can You Apply for a Mortgage Before Returning to Work?

Potentially, yes.

You do not necessarily have to wait until you physically return to work before applying for a mortgage.

In some circumstances, a lender may consider your future return-to-work income if you can provide sufficient evidence of your ongoing employment and expected return.

However, this is not guaranteed.

A lender may look at:

1. Your current employment status
2. Your previous income
3. Your expected return-to-work date
4. Your future income
5. Your employment arrangements
6. Your household expenses
7. Your debts and liabilities
8. Your deposit or available equity
9. Your overall servicing position

The earlier you understand how your application is likely to be assessed, the easier it can be to identify potential issues.

Does Parental Leave Affect Borrowing Capacity?

It can.

Borrowing capacity is based on more than your annual salary.

Lenders generally consider your income alongside your existing financial commitments and their own assessment criteria.

For a household with one person on parental leave, the calculation can become more complicated because the lender may need to consider:

• Reduced current income
• Future employment income
• Number of dependants
• Childcare costs
• Existing loans
• Credit card limits
• Personal loans
• HECS-HELP or other student debt
• Living expenses
• Proposed mortgage repayments

Dependants Can Also Affect Serviceability

Having a new child can affect a lender’s assessment because household expenses generally increase when you have additional dependants.

This means that even if your employment income is expected to return to its previous level, your borrowing capacity may still be different from what it was before having a child.

The lender’s assessment of living expenses and dependants is therefore important.

What About Childcare Costs?

Childcare can be an important consideration when returning to work.

If you plan to return to employment and expect to pay childcare expenses, those costs may need to be factored into your overall financial position.

This can affect how much you can comfortably borrow.

For example, two applicants might have identical salaries but different borrowing capacities because one household has substantially higher ongoing childcare or other household expenses.

Can You Refinance While on Parental Leave?

Potentially.

If you already have a home loan and want to refinance while on parental leave, the lender may assess your current income and future employment circumstances.

Refinancing can be more complicated if your income has temporarily fallen and your existing lender is using different income assumptions from the lender you want to move to.

Before applying, it can be useful to determine:

• Your current loan balance
• Current interest rate
• Current repayments
• Property value
• Available equity
• Current income
• Expected return-to-work income
• Other debts
• Household expenses

A refinance may be possible, but it should be assessed based on your complete financial position rather than simply comparing interest rates.

What Documents Should You Prepare?

If you are applying for a home loan while on parental leave, having your documentation ready can make the process easier.

Depending on your circumstances, you may need:

Employment documents

• Recent payslips
• Employment contract
• Employer letter
• Confirmation of ongoing employment
• Confirmation of parental leave
• Expected return-to-work date
• Expected salary on return

Income documents

• Bank statements
• Parental leave payment evidence
• Government payment documentation where applicable
• Previous income evidence

Financial documents

• Existing loan statements
• Credit card statements
• Personal loan statements
• Savings statements
• Evidence of deposit
• Details of other financial commitments

Your mortgage broker or lender can tell you which documents are required for the specific application.

Example: Borrowing While on Parental Leave

Consider a couple where:

Applicant 1: $120,000 annual salary, currently on parental leave
Applicant 2: $90,000 annual salary
Dependants: 1 child
Deposit: $150,000

Applicant 1 plans to return to the same employer after parental leave.

A lender may potentially consider Applicant 1’s future employment income, subject to its policy and supporting evidence.

But the lender also needs to consider the household’s expenses, dependants, existing debts and other servicing requirements.

Another lender may assess the same circumstances differently.

This is why applying with the first lender you find is not always the best approach.

What If You Are Self-Employed and on Parental Leave?

Self-employed applicants can face additional complexity.

If your income comes from a business, the lender may need to assess business income rather than simply relying on a standard payslip.

Depending on the circumstances, the lender may consider:

• Business financial statements
• Tax returns
• Notices of Assessment
• Business activity
• Business continuity
• Personal income
• Company or trust structures

If your business income has changed because you have taken parental leave, it is particularly important to understand how the lender will calculate your income before lodging an application.

What If You Are Planning to Have a Baby Soon?

If you are considering purchasing a property before going on parental leave, it may be worth understanding your borrowing position before making an offer.

Your future circumstances can affect your finances.

Consider your expected:

• Household income
• Number of dependants
• Parental leave period
• Return-to-work arrangements
• Childcare costs
• Mortgage repayments
• Other financial commitments

The amount a lender is willing to approve is not necessarily the same as the amount you should borrow.

A sensible home loan strategy should consider what your household can comfortably manage after your family circumstances change.

Does Every Lender Treat Parental Leave the Same Way?

No.

This is one of the most important things to understand.

Lenders can have different policies regarding:

• Parental leave income
• Return-to-work income
• Employer-paid leave
• Government parental leave payments
• Part-time employment
• Dependants
• Childcare expenses
• Required documentation

Therefore, being declined or having your borrowing capacity reduced by one lender does not necessarily mean every lender will reach the same outcome.

That does not mean every applicant will qualify elsewhere. Your overall financial position still needs to meet the relevant lender’s requirements.

How a Mortgage Broker Can Help

A mortgage broker can compare lenders and assess which policies may be more suitable for your circumstances.

For someone on parental leave, the important question is often not simply:

“Which lender has the lowest interest rate?”

It may instead be:

“Which lender is most likely to assess my income and employment circumstances appropriately?”

A broker can help you understand your potential borrowing capacity, identify documentation requirements and compare available loan options.

Planning to Buy a Home While on Parental Leave?

If you are on parental leave, preparing to take parental leave, or returning to work after having a baby, your income position does not necessarily mean you have to put your property plans on hold.

The important thing is to understand how your income, employment, dependants and expenses are likely to be assessed before you start making offers or committing to a property.

At Truth Property, we can help you assess your borrowing position and explore home loan options based on your individual circumstances.

Speak with Truth Property about your home loan options today.

Frequently Asked Questions

Can I get a home loan while on parental leave?

Yes, potentially. Being on parental leave does not automatically prevent you from obtaining a home loan. The lender will assess your employment, income, return-to-work arrangements, dependants, expenses and overall financial position.

Do banks count parental leave income?

It depends on the lender and the type of income. Some forms of parental leave income may be considered under specific circumstances, while other income may be excluded or treated differently.

Can lenders use my future return-to-work income?

Potentially. Some lenders may consider expected employment income after parental leave where appropriate evidence is provided and their credit policy allows it.

Can I refinance while on parental leave?

Potentially. Refinancing while on parental leave depends on your income, employment arrangements, existing debt, property position and the lender’s servicing policy.

Does having a baby reduce borrowing capacity?

It can. Additional dependants and household expenses can affect a lender’s servicing assessment, even where employment income is expected to return to previous levels.

Can I get a mortgage if I return to work part-time?

Potentially. The lender may assess your expected part-time income rather than your previous full-time income. The exact treatment depends on the lender’s policy and your circumstances.

Should I wait until I return to work before applying?

Not necessarily. Some lenders may consider an application before you return to work if you can demonstrate ongoing employment and provide appropriate evidence. However, waiting may also be appropriate in some circumstances. Your individual position should be assessed before deciding.

Important Information

Lending criteria, interest rates and credit policies vary between lenders and can change. Approval is subject to the lender’s assessment, verification of your financial position and applicable lending criteria.

This article provides general information only and does not constitute financial advice or a guarantee of loan approval.