Your new little bundle of joy will be arriving in a few months. You look around your home and realize it’s not big enough for a baby and all that stuff that comes with an infant. So, you do what many people do when their family grows — you go look for a bigger and better house and a good mortgage.
Worrying about getting a loan should be the least of your concerns at this time in your life. Don’t fret, the experts say. It is possible to get a mortgage while on maternity leave with new guidelines.
In the past, a maternity leave might have put up red flags for lenders fearing you would be a risk of not returning to your job.
“But that wasn’t a good reason to turn down a woman on maternity leave from getting a loan. Who’s to say that anyone who has a good job won’t quit the next day after a loan is approved,” says Vickie Newman, mortgage loan originator at Real Estate Mortgage Network in Denver.
Although the rules to get a home loan are a lot tougher now, she says, being on maternity leave shouldn’t be a problem if all the documentation is up to date. Being on maternity leave is now considered a temporary leave according to guidelines set forth by Fannie Mae, Freddie Mac and HUD (U.S. Department of Housing and Urban Development), she says. Temporary leave includes other situations including parental leave and short-term disability.
HUD has been looking into lenders the last few years that violate the Fair Housing Act, which prohibits discrimination on the sale, rental, and financing of dwellings. It’s a violation for lenders to refuse to approve a mortgage loan or provide refinancing because a woman is pregnant or on maternity leave.
And they have been going after a few lenders who have bent the rules. For instance this year, PNC Mortgage in Trumbull, Conn., had to pay a couple $15,000 for requiring a home loan applicant on paid maternity leave to return to work before the lender would approve a home loan. That’s a no-no.
So what documentation is needed during a maternity leave that is different from other folks during the application waiting period?
It is important that if you are planning on being on maternity leave when your loan application is being processed that you provide a letter from your employer confirming the date you intend to return to work and what your salary will be, says Sharon Dostie, regional operations manager at Mortgage Network, Inc., in Bedford, N.H.
“Way back in the day, they wanted women to return to work to validate the income was going to definitely be there,” she says. “As things have evolved such as with the Family Leave Act, lenders have to look at people on temporary leave. Maternity leave is just really treated as a short-term leave of absence.”
The lenders are still going to look into the applicant’s two-year work history prior to her maternity leave just like they do with everyone.
If you are going to return from your maternity leave before the first mortgage payment, then a lender uses your regular income. If you are returning after the first mortgage payment, the salary you are getting while on temporary leave will be used to help qualify you for the loan. However, sometimes companies only give a portion of the usual salary to those on temporary leave. And for those self-employed, the paychecks most likely will stop completely.
“So, if the money coming in during maternity leave is not enough for the loan she needs, then we look at liquid assets in her bank account,” Dostie says.
That means the lender takes the amount of savings you have left over after closing costs and divides it by how many months before you go back to work after you pay the first mortgage payment. For example, you have $9,000 left in your savings after closing costs. Your first mortgage payment is January 15, and you plan on going back to work April 15. That’s three months you will be on maternity leave which leaves an extra $3,000 per month that the lender can put toward your temporary income to get you qualified.
“It really all depends on the borrower as a whole,” Newman says. “Some people get paid the same salary even if they are off three months for maternity leave. Others only get a percentage of their pay, and others have built up vacation time to get paid a full salary.”
Dostie adds that no matter with any loan, everybody in this industry is required to do a verbal verification within 10 days of closing. That means the loan officer will call your employer to make sure you still work there and to inquire about your salary information. If you hadn’t told your lender that you might be on maternity leave at that time, it might make for a sticky situation.
“We can’t ask someone if they are pregnant. Unless she will be on leave during the application process, then it doesn’t matter,” Newman says.
For one thing, there is no place on a loan application asking if someone is pregnant, Newman says, which would be illegal to have on it anyway. “And nine out of 10 applications that we get are done online. So, we don’t see the people anyways to know that they are pregnant.”
So, it’s always good advice to just be honest about what’s happening in your life when working with a lender in case those circumstances could interfere with a swift and easy closing. And then you can enjoy that little baby in your new home with your new loan.