Home loans – What permanent, contract and relief teachers can use to show their income, how much cash to set aside and what to check before making an offer.
A teacher’s contract can end in December even when the school expects them back in February. If a home purchase settles in January, the lender may want more than a payslip showing what the teacher earned last term. It may also need evidence of what the teacher will earn next year. That’s a question worth sorting out before the weekend inspections start.
A realistic price range starts with the income the lender will count. The next step is to see what the repayments look like in a quiet month and how much cash the teacher will need beyond the deposit.
How lenders assess teaching income
For a permanent teacher, recent payslips usually show the base salary and contracted hours. An employer letter can help explain a pay rise or a change in hours that hasn’t made its way onto the payslip yet. If the teacher receives a temporary allowance for a leadership role, it’s worth finding out how long the lender expects that income to continue before it counts it.
For a teacher on a contract, the signed agreement shows the hours and the end date. Previous contracts can show whether the teacher has returned to the same school each year or worked continuously across several schools. If the current contract ends before settlement, ask what evidence would be acceptable. One lender might want a signed renewal. Another may look at an employer letter and the history of previous appointments.
Casual relief teachers can have steadier work than a single payslip suggests. A run of payslips and the latest annual income statement can show how often they work and how much they earn across the school year. Several schools may use the same payroll. Where two employers pay the teacher separately, the lender may need records from both.
When comparing home loans for teachers, ask the lender to identify the income it’s using. A busy fortnight can overstate what a relief teacher regularly takes home. A payslip covering part of the school holidays can understate what they earn during term. An annual statement can also be misleading if it shows five days a week and the teacher has since moved to four.
Build the budget around a quieter month
Consider a relief teacher who usually takes home $4,600 a month but brings in $3,900 when there are fewer teaching days. If the mortgage and other expenses come to $3,850, there’s $50 left in the quieter month. At that level, one missed day of work or a bill arriving early can use up the spare cash.
In this example, the $3,850 includes $350 set aside each month for a $1,050 quarterly strata levy. Use the actual levy when it’s available, then allow for council rates, water charges and insurance. The household budget should also reflect any regular support sent to family. Car finance, student debt and credit card limits belong on the list of commitments the lender will see.
It’s worth checking what the budget would look like with a higher repayment as well. Fixed rates can make payments predictable for a period. A variable rate can change before the next school term starts. Some borrowers prefer to keep savings in an offset account, so check how much the account costs and how the lender applies the balance before deciding which loan suits.
What to set aside beyond the deposit
On an $800,000 home, a 5% deposit comes to $40,000. Eligible first home buyers can apply through a participating lender under the Australian Government 5% Deposit Scheme, which can help them buy with a smaller deposit without paying lender’s mortgage insurance. The property needs to meet the scheme rules and the buyer still has to qualify for the loan.
State and territory concessions vary. In New South Wales, the First Home Buyers Assistance Scheme can provide a full transfer duty exemption on an eligible new or existing home worth up to $800,000. A reduced rate can apply above $800,000 and below $1 million. Conveyancing, inspections and moving costs still need a place in the budget.
The deposit shown in a loan example is also worth checking against the deposit due under the contract of sale. The contract sets out what is payable and when. A buyer planning to borrow with a small deposit should ask their conveyancer to check the contract amount and confirm any different arrangement before exchange or auction day.
If family is helping, tell the lender whether the money is a gift or will need to be repaid. For funds coming from overseas, find out what records the lender will need to trace the money before the transfer. Leaving this until the week of exchange can put pressure on an otherwise workable purchase.
What to check once there’s an address
Two apartments near Top Ryde can be advertised at a similar price and cost different amounts to own. A strata report can show what the owners are paying each quarter, how much the building has set aside for major work and whether a special levy is planned. A conveyancer can put those details in context alongside the contract.
A mortgage broker in Ryde can check whether a lender has restrictions on smaller apartments or on how many units it will finance in the same building. Sending the address and floor plan early gives the lender a chance to flag a property issue while there’s still time to look at another lender or apartment.
Conditional approval can give a buyer a price range, but the lender may still need to check the property, confirm a valuation or update its assessment of the buyer’s income. If a contract renewal is pending or the buyer has changed schools, check what the lender will need before it can give formal approval. At a New South Wales auction there’s no cooling off period, so have the finance and contract questions resolved before bidding.