Are you prepared for how a new baby might affect your chances of buying a home?
When a lender assesses your home loan application, they look at your income, assets, debts and expenses before deciding whether they think you can make the repayments. Those figures are likely to change when you have your first child. That means your eligibility for a home loan could also change.
Here are some things to consider when applying for a home loan with a baby on the way ;
Changes to your income
A lender needs to know that your income will cover your mortgage repayments, even while someone’s taking time off work to be a new mum or dad. If you’re the primary carer and you plan to leave employment temporarily or indefinitely, the loss of your income will affect your household income. When you’re applying for a loan and planning to take an employment break, you may need a letter from your employer confirming your return-to-work income. Both parents may be eligible for parental leave. In many cases the parental leave pay will be lower than your regular income. To get an idea of what your new income will be, figure out how much parental leave you plan to take. Also speak to your employer to find out whether they offer any additional entitlements.
Cost of raising a child
When you calculate your expenses, you’ll need to factor in the cost of raising your child. As a guide, a University of Canberra study estimated that low income ($1,160/week) families spend on average 7.4% of their earnings to raise a child aged 0–4, whereas high income ($4,984/week) families on average spend 4.6%. Whatever your income, when you have a child your ongoing expenses will go up. This means you’ll have less money to make home loan repayments, so the amount you’ll be able to borrow may be less.
Cost of the loan
Before deciding on a home loan product, research the likely cost of the loan and the size of the repayments.
The following items will affect your repayments:
- The amount you borrow.
- The length of the loan; the average home loan is 25–30 years.
- The interest rate.
- Whether the interest rate is fixed, variable or combined.
Your financial commitments
First, assess your current financial situation by pulling together information about your income and expenses, including any existing loans. What repayments can you afford? Then, using this information, adjust the amounts to reflect your income and expenses after having your child. What does that do to your home loan repayments? Although raising a child will be an added expense, you may find that you can reduce your discretionary costs – such as dinners and holidays. Depending on how much you can reduce, this may even give you about the same financial capacity. Or perhaps you can still afford to service a mortgage but may not be able to borrow as much as you first thought.
To discuss your home loan options call us today on 8300 8300 or complete the contact form on this page.
This information is general in nature and does not take into account your personal circumstances