When you receive a stipend, it can become more difficult to get a mortgage as lenders may not view it as income. But this isn’t the whole story because mortgage brokers know there are companies who will consider the stipend as part of your application.
In this guide we will look at:
- Definition of stipend income
- What lenders will want to know
- How much can you borrow on a stipend?
- How much deposit will you need?
- Stipend income and bad credit
- Stipend income and buy to let mortgages
Definition of stipend income
A stipend is also sometimes known as benevolence income, it is a payment made by an employer or organisation with the aim of covering basic living costs while working or training. This will be for things like food and housing, fuel or travel costs and phone bills. Examples of who may receive it include charity workers, clergy and those studying a PhD.
What lenders will want to know
If you are seeking to get a mortgage when receiving a stipend, there are a few things that lenders will ask to be able to consider you. Some won’t accept it as a source of income but those that will, questions will include:
- Who is applying for the mortgage? Some lenders will only accept stipends as a secondary income so a job would be needed while others will accept it regardless
- How long have you been receiving it? Some require at least a few months’ worths of payments or a minimum remaining period
- What is your profession? Some will accept any kind of stipend, others will only consider certain situations such as PhD work
- What will your profession be? If you are receiving a stipend while training, what role will you get at the end of the training?
- What is your general financial position? If you have debts and may struggle to pay the mortgage, it could be difficult to get a lender
Mortgages with PhD stipend
When you receive a stipend as part of your PhD training, most high street lenders won’t take this into account. That’s because it tends to last for a short time and there’s no guarantee of work at the end of it. However, brokers have a wider range of mortgage products to work with and some of these lenders are more open-minded. They will look at your future earnings and profession to help assess affordability as well as the stipend you are receiving.
Mortgage for clergy stipend
Mortgage lenders are generally more accepting of a clergy stipend because it is paid over a much longer period and could qualify for a clergy mortgage interest deduction. Clergy can use their stipend for housing allowance and mortgage interest education as well as property tax as part of their housing expense. All of this is factored into the affordability calculations. Lenders will want to see you have received it usually for a year, but some may consider if less and you have confirmation from your Diocese that it will be ongoing.
How much can you borrow on a stipend?
Affordability calculations are carried out for every mortgage and lenders cap at income multiples to find the maximum you can borrow. These figures tend to hinge on if you have your stipend alone or if there is more income or more than one applicant.
If you are making a sole application, most lenders will decline it as the stipend alone isn’t enough to qualify for a mortgage. But there are some who will consider up to four times the stipend for a mortgage So if you have just this income alone which is £25,000 a year, you would potentially be able to borrow up to £100,000.
If you are applying with a partner, family member or friend then you may have a better chance when you have a stipend as there is more income in the household. You could even both be students but there would be a larger pool of income between the two of you. For example, if you have a stipend of £25,000 and the other applicant earns £30,000 a year then you could get from £120,000 to £275,000 mortgage depending on how many times the income the lender will consider.
How much deposit will you need?
With deposits, the more you have the better. Most lenders will want a minimum of 5% deposit, some may want around 15%. This money can be from savings, a gift from friends or family or even the organisation paying the stipend may give a gift deposit, depending on their policies.
Stipend income and bad credit
A combination of stipend income and bad credit can make it trickier to get a mortgage, depending on what and when the issues were. Late payments are less severe than debt management plans which are less severe than IVAs or bankruptcies. Also the more recent the problem, the bigger an issue it will be. And if it is settled or not can also play a part.
There are still some lenders who will consider your situation and look at your details so it doesn’t mean that you cannot get a mortgage.
Stipend income and buy to let mortgages
If you have a deposit of 15-25% of the value of the property, then it is possible to find buy to let lenders that will consider a stipend income. You will need to have a minimum income, often £15-25,000 to cover any rental voids when the property is empty.
Buy to let lenders also conduct ‘stress tests’ to see if the loan is affordable and sustainable if the tenant isn’t paying rent. This means the rental income needs to exceed the mortgage, usually by 125-145% depending on your tax threshold.
First-time buyers of properties for buy to let are also subject to the same criteria as for a residential property. So you will need to show you can afford the payments alongside other financial commitments such as your own mortgage, rent and living costs.