Workers Comp Home Loan

Sustaining an injury or illness at work can be emotionally and financially challenging. Workers’ compensation provides essential support, as businesses with five or more employees are typically required to carry this coverage. However, securing a home loan while receiving workers’ compensation income can be complex, as not all lenders readily accept this income type. Which lenders take a practical approach, and what factors do they consider? Read more to find out.

What Is Worker's Compensation?

Workers’ compensation, often referred to as “workers’ comp,” is a payment provided by an employer to an employee injured during the course of their work. These payments are typically conditional on the employee agreeing not to sue the employer for negligence or damages. Depending on the injury, you may receive weekly payments to cover medical bills and lost wages or a lump sum for permanent impairment.

How Workers’ Compensation Payments Work

The structure and duration of workers’ compensation payments vary by state, but they generally follow a predictable pattern. Understanding this timeline is crucial for home loan applications, as lenders focus heavily on payment stability and duration.

Payment Phases (Using NSW As An Example)

• Weeks 1–13: Weekly payments up to 95% of your pre-injury average weekly earnings, minus current earnings and deductible amounts. Additional benefits cover medical and health-related expenses.
• Weeks 14–130 (2.5 years): Payments typically reduce to 80% of pre-injury earnings.
• Weeks 131–260 (5 years): Payments generally cease unless medical evidence confirms ongoing incapacity.
• Permanent Disability: If your condition is deemed permanent (unchanged despite treatment), you may receive a lump sum alongside weekly benefits. To continue payments beyond five years, you must demonstrate no work capacity and an impairment exceeding 20%, meaning your injury reduces your earnings by more than 20% of your pre-injury weekly wage.
• Retirement Age: Benefits typically end at retirement age or up to 12 months after, depending on state regulations.

Payment structures vary between states and territories. Always consult your local workers’ compensation authority for specific information about your benefits.

Home Loan Approval Criteria for Workers’ Compensation Recipients

Getting approved for a home loan while receiving workers compensation or income protection payments is possible, but it depends on the nature and duration of your income, your return-to-work plans, and your ability to meet future repayments. Here’s how lenders assess eligibility:

Loan-to-Value Ratio (LVR) Options

• Borrow up to 95%: Available on a case-by-case basis if your workers compensation income is permanent and has been confirmed for at least 5 years.
• Borrow up to 90%: If you’re returning to working in less than 2 months and can provide a letter from your employer confirming the date you will return to work, the terms of employment and your income. The funds won’t be advanced until your return to work. On a case by case basis, there are a few lenders who may consider your situation if you’re returning to work after 2 months.

Income Assessment

• Income Protection Payments: While some banks only consider 50% of these payments, we have access to lenders who will accept 100%, depending on your overall profile and supporting documents.
• Permanent Disability Payments: Lenders are generally more open to approving loans where the disability income is confirmed as ongoing and long-term.
• Temporary Disability: Assessed individually based on the severity of the injury, expected recovery, and income continuity.
• Disability Income Not Ongoing: If your workers compensation payments are temporary and you’re not returning to work, and cannot prove that the income will continue then unfortunately, a home loan won’t be possible.

Important: If you cannot demonstrate that your income, whether from employment or workers compensation, is consistent and ongoing, lenders will be unable to approve your application.

Loan Term Conditions

Your loan must be repaid before you retire or stop receiving payments. If this is not achievable, you can still apply by presenting a financial planner-approved exit strategy that shows how you will meet your future obligations.

Refinancing Options

If you’re already a homeowner and your injury or illness has affected your needs, you may be able to refinance your mortgage and access equity to renovate your home. Modifications like ramps, railings, or other accessibility features can be funded through the equity release, subject to lender approval.

Documentation Required For A Home Loan Application

To apply for a home loan while receiving workers’ compensation, you’ll need to provide documents that demonstrate your financial stability and borrowing capacity.
Requirements vary by lender, but you may be asked for:

• A letter from your employer confirming that your job is still open (if applicable).
• A letter from the worker’s compensation insurer or scheme agent to confirm the payments being made to you, the term over which they will be received and the conditions regarding your return to work.
• Doctor’s certificates (if applicable)
• Evidence of your income prior to the injury (payslips, group certificates etc).

Please provide our mortgage brokers with as many documents as you can, we can then work out the most suitable lender and only provide the documents that add strength to your application.

If you believe that you may have difficulty supplying all documents, please enquire online or contact us on 1300 889 743 to speak to our mortgage brokers who can assist you with your application.

State-by-State Workers' Compensation Authorities

Each state and territory have their own regulator that administers and gives advice on workers’ compensation.

As of 1 September 2015, WorkCover NSW has been split into three separate bodies:

The State Insurance Regulatory Authority (SIRA) for workers’ compensation regulation.

SafeWork NSW for work health and safety regulation.

Insurance and Care NSW (icare) for workers’ compensation insurance.

The other states and territories are as follows:

WorkSafe ACT
NT WorkSafe
WorkSafe Queensland
ReturnToWork SA
WorkCover Tasmania
WorkSafe Victoria
WorkCover WA
Comcare (Commonwealth)