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- Can workers' compensation be used to qualify for a mortgage?
Can workers' compensation be used to qualify for a mortgage?
Yes, workers' compensation can be used to qualify for a mortgage. Different lenders will have different policies, and applications are assessed on a case-to-case basis. Lenders are looking for evidence of stable employment and income while evaluating your home loan application. Therefore, how you earn your income will impact your eligibility for a home loan and the amount you can borrow.
For instance, borrowers who work as salaried employees generally find it easier to qualify for a home loan than the self-employed or those who have non-standard finances. That's because lenders can easily verify their income by asking for a couple of payslips and a few months' bank statements. However, that doesn't mean you're locked out of the property market if you earn non-standard income.
A few lenders take a more practical approach while assessing home loan applications and consider different kinds of income when evaluating your loan application. This may include the money you earn from a second job, rental income, child support, and even workers’ compensation.
How much money can I borrow with workers’ compensation?
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.
Can a lump sum amount received as workers' compensation be used to qualify for a mortgage?
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.
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Product database updated 22 Sep, 2024
