Full time employed but currently part time

Discussion in 'Property Finance' started by Atra, 10th Feb, 2019.

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  1. Atra

    Atra New Member

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    Hi All,

    I believe lenders assess gross income the same for full time and part time employment (unlike casual).

    However, do lenders ever use an employee's full time income when they are temporarily part time?

    For context, my wife has a full time permanent state government position but has reduced her loading to 50% now she's back from maternity leave. Will lenders use her current part time loading for income assessment purposes? If so it seems a bit silly, as in a pinch she could go back full time (and double her gross income) with just an email...

    Thanks
     
  2. Joseph Skewes

    Joseph Skewes Well-Known Member

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    Why would it be silly to assess income based on what she is currently earning?

    A lender should asses income based on the current circumstances (not a potential future scenario). If she went back to work full time there may be other expenses incurred (e.g. childcare costs) which you don't pay now.
     
  3. Atra

    Atra New Member

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    The point being it IS a potential scenario. For many others it is not. She has the ability to double her gross income on a whim.

    Also, in our situation expenses would drop (grandparents spending money on food/activities rather than us).

    Broad brush assumptions are too loose for some and too tight for others:

    • At max lend they assess at 7.25% and assume we break even.
    • At 3.75% we'd be saving ~20% of net.
    • If rates got to 7.25% she can go full time and we'd be again be saving ~20% of net.
    • If rates went to 10% we would cut some discretionary spending and still save 20% of net.
    • By my calcs we can handle ~14% rates before I'd be stressed.

    The obvious workaround is to switch to full time, qualify for the loan and then decide to drop back down. That's a waste of everyone's time.
     
  4. JetstreamVic

    JetstreamVic Well-Known Member

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    But how does the lender know that 'She could just send an email?' What if she sent the email and they said no? (Albeit you assert the answer would always be yes)

    The banks just got a massive foot in the backside for writing loans that people couldn't pay. I don't think they would be looking at engaging this kind of behaviour so soon.

    Whilst you are correct that it would be a waste of everyone's (but really just your wife and her employer's) time to convert to full time hours and then qualify for the loan, and then reduce back to the current level. It provides the bank with a very easy get out clause of, 'Well they could afford it when they came to us'.

    I think there would also be some sort of clause in the paperwork about future changes of circumstances that will likely effect the financials of the applicant/s
     
  5. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    some lenders might assess on a full time salary if she is going back to full time work, but generally difficult I think
     
  6. SoroSoro

    SoroSoro Well-Known Member

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    You're describing a "I want to eat my cake and have it too" situation. If you want a lender to assess your wife's income when she is full-time, then she should be full-time.
     
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  7. Atra

    Atra New Member

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    I get the reticence but was hoping there were lenders out there that dealt with a little more nuance rather than a broad brush approach.

    Her contract is full time. She has an exercised an option to go to part time temporarily. She can go full time whenever she chooses.

    Mathematically it doesn't make sense. The chance of not getting her full time income when requested is lower than the chance of a private sector employee (including me) losing their position. I.e. her full time role is safer than mine!

    Not to worry. We'll jump some hoops.

    Thanks all.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    The bank is assessing risk not earnings capacity. I could be seconded to be a cleaner but I am employed sad a rocket scientist. My choice to be earning $ 20/hr not $500/hr. What will the bank consider - my current package or my potential?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Lenders assess your income as it is, not as it could be. If you need to use her full time income, then she needs to change her arrangements, work full time and get a payslip or two.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if u can get a one week full time payslip that may solve it with many lenders

    ta

    rolf
     
  11. Joseph Skewes

    Joseph Skewes Well-Known Member

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    Wouldn't a planned material change to income after settlement breach the contract you sign (if you didn't let the lender know)?
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I dont believe thats what is talked about here.

    A payslip represent current income.

    the intention would be to continue the same current income

    intention and life/path are often 2 different things.

    imagine a world where a female under 50 cant get a loan because she might get preggers........

    ta
    rolf
     
  13. Joseph Skewes

    Joseph Skewes Well-Known Member

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    It is pretty clear what was being talked about.
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    APG 223 and ASIC are somewhat prescriptive.

    Nuance and mainstream banking dont often go together

    ta
    rolf
     
  15. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The simple fact is lenders assess your current income, not what it could be. If you need the full time income to qualify for the loan then that's your answer to the problem.

    We also know that lenders build multiple layers of conservatism into their models, it helps when changes like an income drop do occur.

    Once you've got the loan, it's up to you to determine if making changes to your income will put you in an untenable position. You're the best person to make that decision.
     
  16. Redom

    Redom Finance Strategist Business Plus Member

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    Its not an unusual situation, where returning to work borrowers transition initially from part time to full time.

    From my experience, lenders won't accept the full time income. Even if there's a set proposed plan for a return to full time in writing on a set date, it's unlikely lenders will accept it (maybe on a very strong deal). In the scenario where she can work full time but doesn't, there's very little chance they'd accept it.

    Resi lending is a bit more black and white than other forms of lending (commercial). You fit the rules, check the policies & make the assessment. Most lenders have some room to deviate, but overall, not very much. This likely requires a push around the boundaries a bit further than most lenders willing to go.
     
  17. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Many lenders wont even accept a 3 month period of paid maternity leave before returning to FT work as a sign of return to work. Anything can occur which prevents actual return.

    Many borrowers poorly time loan applications. Best to do them before taking leave or changing jobs etc
     
  18. Brady

    Brady Well-Known Member

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    Who's your current banking with?

    I tend to disagree with most of the brokers here, I find it's very common for employees to return to work on reduced hours.
    Most government roles have excellent mat leave policies which allow reduced hours, with the ability to increase the hours back up to full time - refer to the employment contract.
    If she's actually intending to return to increase hours, get a letter from her boss confirmed when she's returning with details, pay/hours etc (can be hard with some employers/govt)
    Then need to get approval from the lender to sign off on the increase hours, BUT need to be able to mitigate if there is a shortfall now.
    Loans are for 30 years, I don't have any issues with someone who's worked most of their life, takes time off to start a family, is planning to return to the normal working hours they have previous worked, have made adequate plans and have sufficient available funds to cover and income shortfall. (note would need to include expenses based on return to work, extra petrol, travel, childcare etc)
    Can't see why would want to punish those for starting families, very counter productive.
     
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  19. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I agree with Brady - I've done lots of return to work deals and they've all been fine. As long as the client has a letter stating the RtW date, hours and pay, and has enough in the bank to cover any shortfall, it hasn't been a problem.
     
  20. tobe

    tobe Well-Known Member

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    My reading of the OP is there isn’t such a letter. It’s just she could choose to return to FT whenever she likes. Without the letter stating an actual date and salary it’s goong to be difficult IMO.
     
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