Can workers' compensation be used to qualify for a mortgage?

Even though your workers’ compensation can help you qualify for a home loan, lenders may have additional criteria to fulfil. For instance, the circumstances of your workers’ compensation may affect the amount you can borrow for a home loan. If you’re receiving permanent compensation for at least five years, some lenders will allow you to borrow up to 80 per cent of the value of the property. However, you may find it more challenging to get approved for a home loan if your compensation payments are temporary. Approvals in such cases are usually contingent on your return to work. You may be required to provide a letter from your employer stating when you're likely to resume work. Some lenders also use a percentage of income protection payments while calculating repayment capacity. 

If you're on workers' compensation and want to apply for a home loan, get an idea of how much you can afford to borrow (or repay). The amount of compensation you receive could be less than your salary, putting your household under stress due to the reduced income. Instead of rushing to buy a property, take time to review your finances diligently and only apply for a home loan if you're confident that you can service it.

Speaking to a broker may help you better understand your options and discover lenders who are likely to lend money to borrowers in a similar situation as you.

Different states in Australia have different rules around workers' compensation. There may be some circumstances where you may be entitled to receive a lump sum payment as compensation and the weekly payments available through the system. 

However, if you're in dispute with the insurance company, you may be offered a lump sum amount to settle the dispute. If you accept this offer, you may no longer be entitled to any ongoing payments as part of the arrangement. It could be challenging to qualify for a home loan in such a case as there won't be any steady income to show the lender you can service the loan. 

If your employer’s insurer has refused the payout or paused any payment it could help to consult a legal professional. They may advise you to challenge the decision, which is best done before applying for a home loan. It’s usually better to wait it out and only apply for a home loan once the payments resume.