Getting a Mortgage Pre-Approval Before Maternity or Paternity Leave

Homebuying during or before maternity or paternity leave is common. And thanks to fair housing laws, a lender can’t legally deny a loan because you or a co-applicant is pregnant.

However, the lender must prove continued income for the next three years. This includes verifying upcoming family leave discovered during the application process.

Here’s how to navigate family leave when looking for a home.

Should You Tell Your Lender?

The first question is whether the lender needs to know about upcoming leave.

Your loan officer can’t ask if you’re pregnant – or even that you’re on leave. Fannie Mae says, “If a borrower is not currently on temporary leave, the lender must not ask if they intend to take leave in the future.” Such a question could be viewed as discriminatory.

If your leave will occur after loan closing, you might consider not volunteering the information.

However, your lender could discover your plans from your HR department or some other clue in the file. The discovery will trigger a review of income during leave. This could derail your approval at the last minute.

So, if you’d rather be safe than sorry, it’s a good idea to tell your lender.

Maternity and Paternity Leave Documentation

Rules change slightly based on the type of loan you’re getting. General family leave documentation includes:

• A letter stating you intend to return to work

• The date of your return

• Confirmation from your employer that you have the right to return and the approved date

• Proof of income during leave

• You may need to supply proof of liquid assets (checking and savings accounts) that can supplement lost income during leave.

Let’s take a closer look at when you have to prove the income you’ll receive during maternity or paternity leave.

What Income Will the Lender Use?

Maternity leave income calculation depends on which loan type you’re getting.

Conventional Loans

You will return to work before the first loan payment: The lender will use regular employment income. For example, you buy a house in mid-June and your first payment is August 1. The lender can use your standard income if you return to work by August 1.

You will not return to work before the first payment: The lender will use the maternity leave income, if lower. You may supplement lower income with liquid assets remaining after closing. For example, you have $29,000 in checking and savings. You need $20,000 to close, leaving $9,000. Your maternity leave will last three months after closing. The lender may supplement maternity income by $3,000 per month ($9,000 divided by three months).

FHA Loans

As with conventional loans, you and your employer must confirm the intention and ability to return to work.

The lender can use your full pre-leave income if you will return before the first mortgage payment due date.

If not, and your income is reduced during leave, FHA requires you to prove adequate surplus funds to carry you through to your return date.

USDA Loans

USDA loan rules for maternity/paternity leave largely match those of conventional loans.

VA Loans

Document your intent to take leave, your intended return date, and verification from your employer of all the details. You will have to qualify based on reduced income during your leave, assuming you won’t be back to work before closing.

What If I Don’t Qualify?

You might not qualify using lower income during maternity or paternity leave.

In this case, you would have to put your home shopping plans on hold until after you return to work and can provide your first pay stub.

While this can be discouraging, it’s better than making an offer on a home and losing your earnest money because you can’t close.

Check your eligibility with a lender.

What If I Don’t Plan to Return to Work?

If you don’t plan to return to work, you would have to qualify using a co-applicant’s income only.

You could be on the loan, but your income would be zero for qualification purposes.

If you can’t qualify with one income, you’ll have to find a home and close before leaving your job or going on leave. This is risky, though. Your employer may let the lender know about an upcoming leave or termination date.

If at all possible, go on leave for as long as possible. Make plans to return to work. You can always change your mind later – after loan closing.

Family Leave: Not a Deal Killer

A good loan officer will guide you through your family leave situation, advising you on how to properly disclose information. The best plan is to start the process and get a professional review of your situation.

Find a quality lender here.