We all get stereotyped based on our job. When I meet people and they ask me what I do, I just tell them that I give people money; that way whether they love or hate mortgage brokers, they always love me!
But how many of the stereotypes are really true?
The major banks have been keeping stats on who pays their loans and who doesn’t, and the results are actually quite surprising!
What are they judging you on?
These days, banks credit score home loan, credit card and personal loan applications. Put simply, they’ll give you a score based on the risk of your loan and if you don’t get enough points then you’ll get knocked back without a human even looking at your file.
So what do they actually look at?
- What occupation you’re in.
- How long you’ve been in your current job.
- How long you were in your previous job.
- If your previous job was in the same line of work.
- If there was a gap between your current and previous job.
- Whether you’re employed by the government, your family or in the private sector.
- What your current income is. A high income isn’t always a good thing (I’ll explain in a sec).
- If you receive overtime, commissions, bonuses or allowances.
- Whether you’re full time, part time, self employed, casual, an agency worker, contractor or work two jobs.
Actually, this is just a small fraction of what they look at when they credit score your application.
You can use our credit score calculator to find out how they will view your full situation.
Are the stereotypes true?
Okay, let’s get straight to the stereotyping!
Builders and tradesmen have a reputation for being a bit unreliable. Is it true? The banks certainly think it is. Your credit score will be a little lower if you work in the building industry. Don’t feel bad: we know that the reason builders often have financial trouble is that almost nobody pays their builder on time!
What about doctors? Are they really as reliable as we think? Again, yes, the stereotypes are true. Banks know that doctors almost always pay their loans and so we can often get no LMI loans for doctors.
So which other professions are considered low risk?
What about IT? You guys are known for changing jobs all the time! It’s rare that we get a home loan application from someone in IT who has been in their job for more than two years. That can be a problem as some banks really focus on employment stability so we usually apply with a bank that doesn’t see this as a problem.
Who signed your pay cheque?
It’s a no brainer, but working for the government gives the banks the confidence that your job is safe. I’m not sure how safe it is these days with all sorts of budget cuts but the folks in Canberra are still scoring very well with the banks.
Working for a multinational is considered to be a lower risk than a small business. Some of our banks look at the Australian Business Number on your payslip and see how long it has been running for. This can catch out people who work for a large company that pays them via a subsidiary company that was just set up.
What catches most people out however is working for the family. No, not that type of family! When you work in a family business, put simply, the banks just don’t trust your payslips. I mean your parents could have just made up something to help get you approved. So they’ll ask for your life story before they approve your loan.
It’s a good idea to talk to us a few months before you apply for a mortgage so we can prepare everything to ensure that you get approved.
Gap years raise eyebrows
Did your last job drive you to the brink of insanity? More than one of my friends has said, “Aaarrgggghhhh! I can’t take this anymore”, packed their bags and headed for Europe for 12 months.
That’s all well and good from a lifestyle point of view, but the banks don’t care about how much you enjoy yourself and how jealous your Facebook friends are of you sinking beers in Munich. All they see is that you aren’t career-focused.
What’s more, they often can’t tell why you took time off work. They can’t tell the difference between someone that saved up and took a year off and someone who got fired from a string of jobs and had a mental breakdown. Both show up as an unexplained gap in your employment history.
This goes for all types of gaps such as maternity leave or time you spent studying.
Will your job be there tomorrow?
Permanent full time employees are the safe bet. The stats show that permanent part time aren’t quite as secure but they are still a good bet for the banks.
It’s everyone else who is in trouble!
Banks trust a casual worker who has been employed a long time and has regular shifts.
Agency employees and contract employees are considered to be the highest risk. They just can’t tell who is printing money by working short term contracts and who is scrambling from job to job hoping that another opportunity will come up. Don’t worry though, some banks take a common sense approach.
Having two jobs is a bit more complicated. They tend to look at the total hours you are working; if it’s over 60 hours a week then it’s probably unsustainable. Unless you’re addicted to coffee like me! They also look at how long you’ve had your second job. If you’ve only started recently then many banks will not accept this income.
As for the self employed, it’s complicated. Reeeally complicated. I’m not going to get into it here. Read our page on getting a home loan while self employed.
Total income is less important than type of income
You’d be surprised how many calls we get from people who earn $100,000 and then had their bank knock back their home loan application because the bank only used $50,000 when they calculated their borrowing power.
What went wrong?
The banks are looking at the stability of your income, not just how much you get. Allowances and overtime income are often accepted if you are in essential services such as the ambulance service, nurses, police and mortgage brokers (at least, I think we’re essential). For factory workers, your income assessment is based on how regularly you have received overtime in the past.
In contrast, commissions and bonus income are considered to be very unreliable. I don’t agree with the banks on this one. Salesman can often work their butt off and earn extra money when they really need to. In other words, when they have a crippling mortgage they tend to smash their sales target and then the mortgage doesn’t look so crippling. This is a concept known as the income thermostat.
So with commission or bonus income they tend to ask for a two year history. That’s pretty harsh, especially, say for, an experienced real estate agent who has just moved to a new agency. Should we really wait another two years before accepting their income? I don’t think so.
High flyers get shot down by banks
Do you earn $200k? $300k? Awesome! If you’re single and female then call me. I need someone to support my coffee and travel addictions.
Jokes aside, having a high income means that banks are going to expect more from you! That’s right: they want to see you have more in savings. This is known as the asset to income ratio.
Just to clarify, if a teacher earns $60k per annum and they have $30k in savings then they’re clearly good with their money and will normally get approved. But if you earn $300k and have $30k in savings then the banks will wonder where all your money has been going. You’re a higher risk because apparently you’re ‘character’ isn’t what they’re after.
Who gets stuffed around by this the most? People who have just been promoted or headhunted to a new job with a delicious salary.
How can we help you?
I’ve really only scratched the surface of how the banks view your job and your income. The good news is that while many banks are extremely conservative, there are a few that use common sense and want to help good people to get into the property market.
Give us a call on 1300 889 743 or fill in our free assessment form to find out if we can help.
Lastly, income from eBaying stolen office supplies doesn’t count. Sorry!