Whoa, Baby! Getting a Mortgage Loan While on Maternity Leave
Congratulations on starting your family! It’s exciting, but you may need more room to grow. Being a first-time homeowner is also thrilling, but a mortgage loan and maternity leave may not be what you have in mind.
You may hope that your baby will arrive once you’ve settled into your new place. But life doesn’t always work out the way we plan it or think it should.
A lender can’t legally deny you a mortgage because you’re becoming a parent. But you may have to do more work for approval because while on maternity leave, you may receive minimal income for a while. Don’t worry. We’ll show you how you may get approved for a home loan while you enjoy time with your little one.
Giving Birth to a Mortgage Loan While on Maternity Leave
When you start a family, you don’t want to worry about getting approved for a mortgage while on maternity leave. After all, you’re pregnant and probably stressed out.
However, your lender must show that you can prove you can pay back a loan. It’s why they use the debt-to-income (DTI) ratio. It’s a strong indicator of how much house you can afford, given your income and monthly expenses.
If you’re planning an upcoming maternity leave or are about to begin one while looking for a new home, you’ll want to establish and prove your leave income.
Why?
Because your lender can use your current wages for qualifying purposes for when you go back to work.
Keep in mind that you can always offset your income by making a more significant downpayment, paying down debt, or getting a consignor.
What You Need to Know About Mortgage Approval and Maternity Leave
According to The Department of Housing and Urban Development (HUD), a woman can’t be denied a mortgage because she’s on maternity leave or pregnant as it violates the federal Fair Housing Law, enacted in 1968. It forbids discrimination in housing, including mortgage lending, based on race, color, national origin, religion, sex, disability, or familial status.
When it comes to home loans, your lender will review your income, assets, and liabilities as they would any other applicant.
So you’ll want to make sure your finances are in order.
A lender also considers if you have a paid or unpaid maternity leave, along with your return date to work.
They want to see evidence that you’ll return to work, so a paid maternity leave is better than an unpaid one.
Maternity leave shouldn’t prevent you from getting approved. But, you should know how your time off will impact your finances.
“I’m Pregnant.” Do I Have to Tell a Lender?
No, you do not! A mortgage lender does not have the right to ask you if you’re pregnant or on maternity leave when you apply for a home loan. If a lender asks you about this, it may be considered discriminatory under the Equal Credit Opportunity Act.
Your lender wants to know whether or not you can meet your repayments on your mortgage without substantial financial hardship. And you may be asked if you anticipate a change in your circumstances soon.
Again, a lender cannot ask you if you’re pregnant or on maternity leave. But they must verify your current and future employment status and income.
Depending on your company’s maternity leave plan, it may affect your income significantly.
Caring for a new baby increases your expenses, which may affect your mortgage repayments, depending on your monthly income.
Defaulting on your home loan will affect you, so it may be in your best interest, to be honest with your mortgage lender. But again, you’re not obligated to do so.
Going on Maternity Leave? Gather These Documents
Before you start your maternity leave, gather the following documents, so you have them ready for when you sit down with your lender.
- T4 tax slip from the year before your maternity leave (for salaried employees).
- A letter verifying your employment, your anticipated return to work date, and your annual salary.
Are you paid hourly? Include the number of weekly hours you worked. Do you always work overtime? If so, provide documentation from at least two years to show consistency.
And These are Your Options
Good news! You have options if you plan to take maternity leave.
If you return to work on or before making your first payment, a lender will use the “pre-leave” income amount.
You basically get approved based on your income before your maternity leave.
Will you return to work after your first mortgage payment due date?
If so, your lender can review your financial reserves to ensure you have enough cash to cover the duration of your maternity leave.
Keep in mind that your lender must do the following:
- Provide a written statement of your intent to return to work.
- Document your employer’s acceptance of employment after your maternity leave.
- Verify that you have sufficient assets to close in addition to supplemental income.
For instance, let’s pretend that you have $20,000 in your bank account after closing on your home loan (includes your down payment and closing costs).
A lender can divide your monthly mortgage payment into your reserves and calculate a “supplemental income total,” which is based on the number of months between your first payment and return to work date.
If you have $20,000 in your savings account, and you have to make five payments before you return to work, the supplemental income would be $4,000 ($20,000 / 5 = $4,000).
The Family and Medical Leave Act and Qualifying for a Mortgage
Employers in Ohio are subject to the Family Medical Leave Act (FMLA) if they have at least 50 employees for at least 20 weeks in the current or previous year. And employees are eligible for FMLA if they meet the following criteria:
- You worked for the company for at least a year.
- Put in at least 1,250 hours during the previous year
- You worked at a location with at least 50 employees within a 75-mile radius.
Not only do you have the right to return to work, but while you’re on maternity leave, your employer should continue to provide you with the same benefits, including health insurance.
Most maternity leaves are six to eight weeks, which is part of the 12 workweeks per year allowed for the care of your child in the first year.
Keep in mind that a small business that doesn’t have at least 50 employees are not required to follow the Family and Medical Leave Act.
If your company is out of state, ask if they have benefits for those taking leave who may not have maternity benefits.
Ask your employer’s HR department to verify their maternity leave policy and the benefits you’ll receive while on leave. Your mortgage lender will need this information to approve you for a home loan while you’re on maternity leave.
Getting a Home Loan While on Maternity Leave
When you go on maternity leave, your income may change or stay the same. It depends on your employer, and in some cases, the state you in which you live.
This is why it’s so important to work with a lender who will do their best to work with you every step of the way.
Work a loan officer who has experience with working with clients who went on maternity leave. After all, you want to meet with someone who’s understanding, easy to work with, and who’ll do their best to offer you a mortgage home loan that is best for your budget.
Ready to get a mortgage? Contact us today, and let’s have a conservation about your home loan!
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Posted In: Home Buying, Lending
