Yes, you can get a mortgage on maternity leave. Here’s how
You’ve decided to start a family and you’d like to move into a larger place.
The last thing you want to worry about is whether or not you’ll be approved for your home loan while on maternity leave.
The good news is, lenders legally can’t deny you a mortgage because you’re becoming a parent. But you might have to jump through extra hoops to get approved.
That’s because, on maternity leave, you will be receiving minimal income for a period of time. And as lenders see it, there’s a chance you may not return to the workforce.
Here’s how to make sure you get approved for a home loan on maternity leave.
- Getting approved
- Loan options
- Maternity income and mortgage qualifying
- Employer and state policies
What to know about maternity leave and mortgage approval
In order to be approved for a mortgage loan, lenders will assess your income, assets, and liabilities. This is the same as they would with any other home loan applicant.
You will still need to be a financially sound borrower.
They will also take into consideration whether your maternity leave is paid or unpaid, as well as the date you plan to return to work.
In general, paid is “better” than unpaid, and most lenders would like to see evidence that you will return to work within 12 months.
Maternity leave typically shouldn’t prevent you from being approved for a home, but you should understand the implications of your leave time.
It’s also extra important to shop around and find a lender that’s favorable for your current situation.
Do I have to tell my mortgage lender I’m pregnant?
Your mortgage lender is not allowed to ask whether you are pregnant or on maternity leave when you are applying for a mortgage.
Asking this question could be considered discriminatory under the Equal Credit Opportunity Act.
However, lenders are required to make sure you can meet your repayments on your loan without significant financial hardship. This means they may ask you whether you anticipate any changes to your circumstances in the near future.
Mortgage lenders are not allowed to ask whether you are pregnant or on maternity leave. However, they are allowed (in fact, required) to verify current and future employment status and income.
Being on maternity leave does affect your income.
And the costs associated with a new baby — not to mention the ongoing costs of caring for a child — would also increase your expenses. Your ability to make mortgage repayments would likely be affected.
If you default on your home loan, you’re going to be the most affected. As such, it is in your best interest to be honest with your mortgage lender.
What documentation is required during maternity leave?
If you’re purchasing a home, you’re required to prove your income in one of the following ways:
- Provide a T4 tax slip from the year prior to maternity leave (for salaried employees only)
- Provide a letter verifying your employment that states when you were hired, when you anticipate returning to work and your annual salary
If you’re paid hourly, the number of hours you work weekly should be included. And if you work overtime frequently, you can provide documentation from the previous two years to show consistency.
Options when going on maternity leave
Fortunately, there are options to qualify for a home loan for someone with plans to take maternity leave.
Both FHA and Fannie Mae have guidelines in place for maternity leave applicants.
FHA guidelines make allowances for any temporary leave of absence including maternity leave. Assuming the borrower’s intentions are to return to work, there are exceptions.
If your mortgage starts after maternity leave
For homeowners who plan to return to work on or before the first regular mortgage payment is made, the lender will use the “pre-leave” income amount.
This basically means you’ll be approved based on your income level prior to going on leave.
If your mortgage starts during maternity leave
If the borrower intends to return to work after the first regular mortgage due date, the lender can review current liquid reserves.
A determination can be made if they have enough available cash reserves to act as a reserve fund for the three months in which the borrower plans to be out of work.
The lender is required to:
- Provide a written statement from the borrowers stating the intent to return
- Document the employer’s acceptance of employment after maternity leave
- Verify sufficient assets to close as well as supplemental income
Fannie Mae guidelines allow lenders to calculate this as “temporary income” while the applicant is on maternity leave.
This supplemental income is calculated similarly to an FHA loan.
Lenders determine available cash reserves after the loan has closed including the down payment amount and closing costs. Leftover funds should be in a liquid account available to the borrowers.
This calculation is used if the loan will close and the first payment due before the individual returns to work.
Why maternity leave affects home loan approval
Maternity leave can impact the amount of income an individual or couple is expected to receive. In turn, this affects their home buying budget. Here’s why.
When you apply for a mortgage, lenders evaluate income for the most recent two years of employment. They are looking for consistent income, as well as the likelihood that the income will continue. Maternity leave can affect that likelihood.
Mortgage lenders are looking for consistent income, as well as the likelihood that the income will continue. Maternity leave can affect that likelihood.
For example, when two people apply for a mortgage loan together, the lender adds up the income from both for qualifying purposes.
If one borrower makes $4,000 per month and the other borrower makes $3,000, the total qualifying income is $7,000.
Your mortgage lenders will request your two most recent paycheck stubs covering a 30 day period along with two most recent W2 forms.
For the self-employed, lenders will also ask for the two most recent federal income tax returns.
The challenge for a mortgage lender comes when that couple is pre-approved based on their monthly income of $7,000, but there is a pregnancy involved.
If the woman who is taking time off for maternity and is not receiving any monthly income during that period, what options does the lender have?
After all, if the woman intends to take off eight weeks for the birth and care of her child, qualifying income would be reduced.
That’s why you often have to show documents stating your plans to return to work, and your employer’s intention to uphold your pre-leave salary.
>> Related: How to buy a house with lower income
A note on the Family and Medical Leave Act and mortgage qualifying
The level of income you receive during maternity leave will depend on your employer, and potentially on the state you live in.
For those who work for a company with at least 50 employees, the employer must adhere to the Family and Medical Leave Act.
If the employee has been employed by the same company for at least 12 months with a minimum 24 hour work week, the employer is required to follow the Act’s rules, primarily as it relates to the employee returning to work after maternity leave.
In addition to returning to work, the employer must continue to provide the same benefits while the individual in on maternity leave including health insurance.
The standard term for maternity leave is anywhere from six to eight weeks. This period is part of the 12 workweeks per year allowed for the care of the child in the first year.
For small businesses that do not have at least 50 employees at the same location, they are not required to follow the Family and Medical Leave Act.
Other states, however, have instituted benefits for those taking maternity leave who do not have maternity benefits.
In California, for example, women can collect temporary state disability payments which amount to approximately two-thirds of their wages during the six to eight week period.
Make sure you check with your employer’s HR department or state resources to verify what your ongoing benefits will be while on leave.
Your mortgage company will require this information to approve you for a home loan on maternity leave.
See if you qualify for a mortgage, even when planning maternity leave
Just like any applicant would, make sure you shop around and compare lenders when you’re on maternity leave.
Ask about each lender’s policies. And look for a loan officer that’s experienced in this area, who can not only offer affordable financing but is also easy to work with.
You can get started using the link below.