Do I Need to Be Off Probation Before I Can Get a Home Loan?
You’ve just started a new job. Great salary, permanent position, everything is looking good. Then someone tells you, “You’ll need to wait until you’re off probation before you can get a home loan.”
Not necessarily.
This is one of those home loan myths that has been around for years. While your employment situation absolutely matters when applying for a loan, being on probation doesn’t automatically mean you have to wait three or six months before applying. Depending on your circumstances and the lender, you may be able to apply almost immediately.
Why do lenders care about a new job?
When a lender assesses a home loan application, they’re trying to establish whether your income is stable, sustainable and likely to continue. Starting a new job gives them another factor to consider, but probation is only one part of the picture.
They’ll generally look at the type of employment you’ve moved into, your previous employment history, whether you’ve remained in the same industry, whether there has been a gap between jobs and whether your income has changed significantly. They’ll also look at how your income is made up. A straightforward base salary can be very different from an income heavily reliant on overtime, bonuses, allowances or commission.
While employment isn't the only thing considered when it comes to borrowing capacity, it does become another reason why choosing the right lender becomes important, because not every lender assesses a newly started job in exactly the same way.
So, what can be acceptable?
Let’s say you’ve been working as an accountant for five years. You leave one accounting firm on Friday and start a permanent full-time position with another accounting firm on Monday, earning a higher base salary and subject to a six-month probation period.
Being on probation may not be a major issue at all. There’s clear continuity in your employment, you have an established history in the same occupation, and your new income can be supported by documents such as an employment contract and payslip.
The same could apply to a teacher who has worked in education for several years and moves into a permanent role at another school. Technically they may be on probation with their new employer, but that doesn’t necessarily mean they need to wait for the probation period to finish before applying for a home loan.
Even changing industries doesn’t automatically rule you out. Someone moving directly from one permanent role into another may still have options, particularly where they have a strong overall employment history. It becomes a matter of looking at the whole situation rather than simply asking, “Are you on probation?”
When can a new job become more difficult?
Now take a different example. Someone has been out of the workforce for an extended period and has just started a new casual job with irregular hours. They’ve only received one or two payslips and want a lender to use that income immediately.
That’s a very different situation.
Casual, temporary and variable income will often require more history because the lender needs enough evidence to determine what income can reasonably be relied upon. Similar issues can arise where a significant portion of someone’s new income comes from overtime, bonuses, allowances or commission.
For example, your new employment contract might suggest you have the potential to earn $120,000 a year, but if $40,000 of that depends on commissions you haven’t actually earned yet, a lender isn’t necessarily going to assess your application using the full $120,000.
There’s also a very important distinction between starting a new job and leaving your job to start your own business. If you’ve moved from being an employee to working for yourself, lenders will generally assess that income very differently. Rather than simply looking at a new employment contract and payslips, they may need evidence of how the business is actually performing and, depending on the lender, a history of self-employed income. I’ve covered this in more detail in my guide to getting a home loan when you’re self-employed.
This is why “I’ve started a new job” isn't enough information to determine whether you can get a home loan. How you’re employed, where the income comes from and what you were doing before the change can all make a difference.
What documents might you need?
If you’ve recently changed jobs, a lender may want a little more evidence than they would from someone who has been with the same employer for several years. Depending on the lender and your circumstances, that could include your signed employment contract, an employment letter confirming your position, commencement date and salary, recent payslips, bank statements showing salary credits, or evidence of income from your previous employer.
In some circumstances an ATO Income Statement or other evidence of your previous earnings may also be useful. The important thing is that there isn’t one universal document checklist that applies to every lender and every new employee.
So if you’ve only received one payslip, don’t automatically assume you’re too early to have the conversation. Equally, having an employment contract doesn’t automatically mean every lender will accept the income immediately. It depends on the lender’s policy and the rest of your circumstances.
Don’t resign from your house deposit
Changing jobs can be a great career move, and being on probation shouldn’t automatically put your home ownership plans on hold. But if you’re thinking about changing jobs and buying a home at around the same time, it’s worth looking at the lending side before making assumptions.
Sometimes the new job won’t create a problem at all. Sometimes it will simply change which lenders are suitable. And occasionally, waiting until you have a little more employment history really is the better option.
The important part is knowing which situation you’re actually in.
If you’ve recently started a new job, you’re still on probation, or you’re thinking about changing jobs while planning to buy a home, feel free to get in touch and we can have a look at your situation before you put your plans on hold unnecessarily.
You find the home, I’ll find the loan.
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