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Using Overtime For Home Loan Applications


If overtime forms an integral part of your paycheck, surely this income is counted in a home loan application, right? Well, not always – and there are rules. 

On one hand, many banks have put a great deal of effort into updating their policies and processes linked to assessing a person’s ability to repay a loan. This is a reflection of an ever evolving lending environment, including the prudential regulator’s temporary limits on certain types of loans and new guidance relating to responsible lending issued by ASIC

On the other hand, it’s also important for banks and other lending providers to directly address the changing needs and expectations of customers – the world isn’t the same place that it was ten years ago, and in turn neither are our financial needs or expectations.

Like any big ticket purchase, applying for a home loan usually requires a significant amount of paperwork – particularly if you actually want to get approved. The presentation of your home loan application can make or break your chances at getting a mortgage, so it’s crucial to understand whether income earned from overtime counts towards your ability to make a repayment. 

The Home Loan Rules For Income Earned From Overtime

When applying for a home loan, overtime income is classed as any funds that you receive on top of your regular income for hours performed in addition to your standard hours. While the extra money may look great in your bank account, banks tend to take a different approach. 

As overtime payments are generally irregular, lending institutions are traditionally quite conservative when assessing any income statements that include overtime hours. 

Lenders are trying to avoid risky lending practices, such as if an applicant runs into trouble when they are no longer required to work any overtime hours by their employer – and thus, perceivably risking their mortgage repayments. 

However, it’s not quite fair for banks to tar all applicants with the same overtime brush, and recent years have seen sweeping reforms linked to when overtime hours can be assessed accurately and fairly for mortgage applications. 

Traditionally, the earnings of many different types of shift workers include not only their base wage, but also overtime compensations, a medley of shift allowances, and penalty rates. In  turn, these payments account for a major part of their overall earnings and comprise a standard income source when assessed over a long period of time.

Thankfully, recent policy changes to lending criteria introduced in 2020 now means that particular types of essential services and emergency service workers can now have their non-base income and allowances assessed at the full 100%, which in turn increases their borrowing power when it comes to applying for a home loan or mortgage. 

Although the exact terms and conditions vary between lending providers, essential service professionals that are able to use 100% of their overtime when being assessed for a home loan application now include:  

  • Healthcare professionals including doctors and nurses 
  • Frontline outpatient and residential care, social assistance and disability support 
  • Police officers, firefighters and rescue employees.
  • Paramedics and ambulance officers.
  • Australian Border Force employees
  • Australian Defence Force employees
  • Corrective Services employees in  prisons, correctional centres and detention centres
  • Primary and secondary teachers along with pre-school educators 

Despite the above changes that have been welcomed by industry professionals from all walks of life, it’s still important to remember that the lending criteria for emergency service workers and essential service workers still does vary from bank to bank. In addition, a bank is only able to offer you their own in-house range of loan products, which may not be suitable or the best choice for your own individual set of circumstances.

Applying with the right lender is the key to being able to use your full overtime pay in your borrowing power assessment. The way that a home loan application is “packaged” – or presented to a lending institute – has enormous ramifications on your chance at getting approved or not, particularly when using income derived from overtime or shift allowances. 

It’s for this reason that using a mortgage broker that specialises in serving the emergency services and essential services sectors such as Cherry Lending & Finance can be a game changer, as you’re in the position to access a wide variety of loans before selecting the one that fits your property vision best.

Your Guide For Navigating The World Of Home Loans 

With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.

If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.  Subject to lenders terms and conditions, fees and charges and eligibility apply.

Credit Representative 499652 is authorised under Australian Credit Licence 389328.