What are the types of acceptable income for lenders?
People in Australia can earn income and be paid in a variety of different ways. How a Lender treats this income to be used to prove that you can afford to repay a loan differs depending on the employment and income type.
PAYG Salary and Wages
100% of income earned is usually accepted if length of employment criteria is met
Probation
Lenders would prefer that probation has been completed, but there are some Lenders who will consider a loan application if you are on probation particularly if you have had stable employment in the same line of work or industry. The loan application will be assessed carefully, because the Lender knows your employment may be terminated at any time while under probation. You may be asked to provide a copy of the employment contract showing the terms of the probation.
Overtime
Up to 100% of overtime may be accepted if shown to be consistent over a period of time. Proof of consistency is shown by PAYG Summaries, and pay slips over a 3-6 month period.
Allowances and Penalty Rates
Up to 100% of shift allowances, and weekend or night penalty rates may be accepted if shown to be consistent over a period of time. Proof of consistency is shown by PAYG Summaries, and pay slips over a 3-6 month period. Other allowances such as a car allowance or meals & accommodation allowances are looked at carefully as they are designed to be provided to offset an increase of personal expenses incurred. We have some strategies available for these types of allowances.
Casual
Casual income can fluctuate depending on the hours worked. Lenders will consider income earned over a minimum 3 or 6 month period shown by providing payslips with year to date earnings, but may ask to see annual earnings that has taken into account unpaid leave or holidays taken throughout the year.
Bonuses
May be used as assessable income depending on the type and terms of the bonus. Consistency again is the key. Some Lenders don’t use bonuses as it is often only paid at the employers discretion. Proven bonuses can be accepted by Lenders if confirmed it is regular and ongoing. Irregular or one off bonuses isn’t usually included as part of income but will be assessed on a case by case basis. Only a proportion of the bonus such as 80% down to 50% of the bonus income may be used by the Lender.
Commission
Some people’s income is made up of 100% commission, and others receive a base salary plus commissions. Lenders will want to average out commissions to calculate an annual income. They will request payslips showing a minimum of 3 months year to date earnings and the last PAYG Summary to confirm earnings. Not all Lenders are the same and some may only take into account half of commissions earned, whereas others will consider all commissions earned.
Salary Sacrifice or Packaged Salary
Salary packaging is common, especially for non-government organisations and charities. Generally, as long as you can explain how your salary is paid and provide documentation to support this, voluntary salary sacrifice can be added back to determine a gross income, but any corresponding debts / commitments that relates to the amount that was sacrificed must also be included in the servicing calculation as a liability. For certain occupations such as nurses or charity workers who receive a component of their income as non-taxed, this is added back to determined a gross income to be used for assessment.
Contractors
Depending if your work is with only one employer or if you contract to a number of companies, will dictate if the lender will treat you most like an employee or a self employed applicant. If you are considered an independent contractor, you will be required to provide tax returns. Income is assessed based on net profit after expenses. The terms and nature of the contract will help with the application
Self Employed
Will be required to provide business and personal tax returns. Income is assessed based on net profit after expenses. 2 years tax returns may be required to show a consistency of earnings although some Lenders may accept the latest tax return. Providing a business plan and cash flow projections can help with a loan application. There are options available for those with limited paperwork which we can assist with.
Second Job
Some Lenders do treat earnings from a second job differently from a main job because they believe that the income is more likely to fluctuate and that the second job may be less stable than a main job. They may only use 50% of the income from the second job when calculating how much you can borrow. Often though, people with several jobs are hard workers, are motivated to save a deposit for their home and are far less likely to run into financial hardship when repaying a mortgage. Showing a consistency of earnings from a variety of sources is important for Lenders to look more favourably on using all of your income in their assessment.
There are a number of lenders who accept 100% of second job income if in employed for over 6 or 12 months.
Centrelink Payments
Some government benefits are accepted as supplementary income whereas others aren’t. Lenders will look carefully at the type of benefit received before using that income when assessing a loan application.
Family Tax Benefits
Family Tax Benefits (FTB) Part A and B and the Large Family Supplement, an extension of the FTB, is accepted by some lenders but there are some conditions:
- Age of children matters: The older your children are, the fewer lenders will accept your FTB income, particularly children over the age of 11 years old.
- You will need to provide your most recent Centrelink statement which can be downloaded from the Department of Human Services website.
- Certain family-related benefits will not be accepted: Rent assistance, parenting payments and the pharmaceuticals allowance are not acceptable. This is because they are to be used for a specific purpose (such as medicine) or will not be received if you buy a home (such as rent assistance).
Pensions including Veterans and Widows Pensions
Service, or widow pensions may be accepted as extra income by some lenders. The main requirement is that you can show proof that you can meet your mortgage repayments on a regular basis and for the foreseeable future. Lenders will look to confirm the pensions are considered to be permanent and ongoing.
Child support / Maintenance
Some lenders will take into account child support and child maintenance when assessing your income. It generally needs to be paid via the Child Support Agency (CSA), and the payments have been confirmed as having been received last six months. Documents to be provided confirm the child support can include:
- A copy of a Family Law Court Order.
- Bank statements showing credits to your account.
- A letter from your solicitor.
- A letter from the Child Support Agency (CSA).
If you are paying child support, this reduces the income you available to meet mortgage repayments, and will affect your maximum borrowing capacity.
Other types of Centrelink benefits aren’t accepted
Not all benefits are used as additional income, and these may include:
- Carer’s Allowance / Payment.
- Disability Support Pension.
- Foster Care Allowance.
- Age Pension
- Overseas Pension
- Any other type of Centrelink benefit.
However, it is possible get a loan using income protection payments as well as workers’ compensation payments in certain circumstances.
If Centrelink payments are your sole source of income, it can be difficult to be approved for a loan. Generally, Centrelink payments are used as secondary income only. The reason for this is that a small number of people receiving benefits are unemployable, and if they stop receiving benefits they will not be able find a job, so Lenders want to see evidence that you are capable of working and that you have a second income source. It is OK if you have a partner who is working and you receive Centrelink benefits if they are on the loan application. Lenders will assess their income as the primary income and your payments as secondary income.