When you're refinancing your home loan, your new lender wants to see evidence of full-time employment and a steady income. This is a strong indication that you can repay the loan. If you're unemployed, refinancing obviously becomes much harder. Your best bet is to wait until you have employment again.
And even then, most lenders are reluctant to approve your loan if you've just started a job or are still in a probationary period. You may need to hold the job for 3-6 months before applying.
How to improve your chances of approval
If you're trying to refinance and you've just started a job or have other employment troubles, you can maximise your chances of loan approval with the following tips.
Talk to a mortgage broker. If you intend to switch your home loan to a new lender you should speak with a mortgage broker to help you understand your borrowing capacity. Mortgage brokers can draw upon their network of lenders and put your application in front of a lender that's more likely to review your application.
Consider specialist lenders. If you don't use a mortgage broker and you decide to approach a new lender yourself, consider specialist lenders or building societies as these lending institutions may have more lenient criteria compared to more conservative lenders.
Clear existing debt. Before approaching a new lender, request a copy of your credit file and be proactive about clearing your name of debt. For instance, this may involve contacting your phone supplier and requesting a payment plan to ensure that you pay your bills in full and on time.
Do you have genuine savings? A lender will be more inclined to approve your application if you can prove that you have the financial means to repay the loan. Generally, the lender will review your income sources to determine whether or not you are capable of servicing the loan. It may request to see evidence of regular deposits into a savings account to show that you have financial discipline, so make sure that you have this information handy.
Consider a guarantor or co-signer. If you can refinance to a joint application, consider borrowing with your partner or a co-signer. This combines 2 different income sources which raises your capacity to service the loan. It also considers the credit history of both borrowers, so make sure you both have good credit history. If you have a family member who owns property, they could act as a guarantor.
Calculate how a rate rise might affect your loan repayments
Finder survey: How long (in days) did Australians consider and research refinancing before applying?
Response
1 - 2 weeks
31.08%
1 - 3 months
22.97%
3 - 4 weeks
14.86%
4 - 7 days
13.51%
2 or 3 days
9.46%
3+ months
6.76%
Within 1 day
1.35%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
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Alternatives to refinancing when unemployed
Given that your chances of successfully refinancing when unemployed are low, you might have to find an alternative option. These include:
Stick with your current loan and lender. If you can't refinance then you don't really have a choice. If you can afford the repayments, keep making them. And most borrowers don't realise that they can negotiate their interest rate with their existing lender. This could be a lot easier than refinancing while unemployed.
Consider interest-only repayments. If you're paying off your debt every month, switching to interest-only repayments can give you a breather. You'll have to pay back the principal later, but having smaller repayments while you're unemployed can be a lifesaver.
Get hardship assistance with your current lender. If you are unemployed and can't make repayments, refinancing probably won't help. You're better off telling your lender you can't make repayments and seeing if it can offer you hardship assistance or a temporary repayment holiday.
Getting a new home loan while casually employed
It's harder to get a home loan approved if you work casually or on a temporary basis. You'll have an easier time getting approved if you have worked in the same job (or jobs) for 12 months. Having a strong history of savings and a large deposit also helps reassure the lender.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification.
Knowing just how much equity you have in your home before you start looking to refinance a home loan is crucial. If you don't have enough equity you might have to pay for LMI again or get stuck with a higher rate.
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