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Applying for a home loan using Casual Income

Casual income

Casual income is the income that you earn when you are on a casual employment and your salary is determined by how many hours you work each week. One of the main differences for someone on a casual employment versus a permanent employment is that under a casual employment, you do not get paid annual leave or sick leave. Some people have a misconception that if you are working full-time hours under a casual employment, they are the same as a full-time employee. However, this is not the case. Lenders can work out whether you are a casual employee or permanent full-time employee by checking your payslip to see if you get paid annual leave or sick leave.

How do banks/lenders treat casual employees and casual income?

As casual income is determined by how many hours worked and annual leave and sick leave not being paid, different banks/lenders have a different approach on how they accept casual income.

Most lenders will shade your annualised income to 46 weeks or 48 weeks based on their conservative approach that if you were to take 4 to 6 weeks of annual leave, you won’t be paid on those hours.

There are some lenders that will accept 100% of your annualised income without shading it. This lender may be suitable for those needing the extra borrowing power.

Other lending criteria that apply to casual income includes the requirement of being in the role for at least 6 months or some lenders may have an exception that if you have been in the role less than 6 months, they can accept it if you have been working in the same industry for at least 12 months.

Example of someone with a casual income applying for a home loan

Someone working under casual employment applies for a home loan. They earn a Gross income of $1000 per week. This equates to $52,000 per year (annualised).

This lender’s policy is that they will shade the income to 48 weeks if it is casual income.

This means the lender will only accept 48 weeks of the annualised $52,000 per year income.

$52,000 divided by 52 weeks to get the weekly figure then multiplied by 48 weeks which equals $48,000.

By going with a lender that applies 100% of casual income without shading, they will accept $52,000 as the Gross income.

What you should consider or be aware of

  • If you are a casual teacher, lenders may have a different policy on how much they shade the income. This is due to casual teachers only working 40 weeks per year as they do not get paid for the school holidays. This may impact your overall borrowing capacity. By speaking to a mortgage broker, they can assess your situation and find you the most suitable lender to meet your objectives and requirements.
  • If you have recently changed jobs into another casual position and have been in the same industry for less than 12 months, some lenders won’t accept this.

Frequently Asked Questions relating to casual income and employees

How long do I need to be in the role to apply for a home loan as a casual employee?

Generally, you need to be in the role for at least 6 months for the lender to accept your income.

If you have been in the role for less than 6 months, there may be an exception with some lenders if you have been in the same industry for at least 12 months.

What is the maximum Loan to Value Ratio (LVR) I can borrow up to if I am on a casual income?

If you borrow more than 80% LVR, there will be Lender’s Mortgage Insurance (LMI). Most lenders allow you to go up to 95% LVR (including LMI) for Owner Occupiers or 90% LVR (including LMI) for Investors, however, it will be subject to your borrowing capacity.

Which loan types are available for casual employees applying for a home loan?

All loan types are available. Please consider the loan type based on your objectives and requirements.

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