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For many families, buying a home and having a baby are two big dreams on life’s to-do list. However, if you’re pregnant or a new mom trying to qualify for a mortgage, there’s a chance going on maternity leave could keep you from getting approved for a loan or purchasing a home. Taking paternity or any other type of leave, including disability, can also affect whether or not you’ll be able to buy.
One woman’s story
A Michigan woman we’ll call Jane (not her real name as she requested to remain anonymous) tells the story of her mortgage experience while she was pregnant and preparing to go on maternity leave a few years ago. Although Jane’s situation worked out in the end, the soon-to-be mom was put through a lot of extra stress by her mortgage lender during the last months of her pregnancy:
“I went to the mortgage company and we were pre-qualified based on income and credit factors. I told our mortgage rep in January that we were expecting a baby in July.
“After looking at many homes and several offers later, we finally had an accepted offer in May. The housing market was much more competitive than we realized and it took a while to find a house. We were told that the (mortgage approval) process should take about 30 days, if we were diligent about submitting required paperwork for the underwriters quickly.
“My mortgage rep told me several times ‘You better hope you don’t have that baby.’ He claimed that if I did, they could not close on the house since I would be on maternity leave and could not verify my income. This gave me incredible anxiety since the delays in our process (repairs by the seller, appraisals and reappraisals) were entirely out of my control.
“I am the breadwinner. The amount of the mortgage preapproval was largely due to my income, so (it) had to be verified.
“After much pushing and complaining, the mortgage company was finally able to get us a closing date — the day we left the hospital with my newborn. We left the hospital and closed on our house five minutes later.
“It is hard to believe in this day and age that women would be treated this way in the mortgage process.”
How does maternity leave impact the mortgage process?
Jane’s story raises a key question: How does maternity leave impact the mortgage approval process?
When you apply for a home loan, mortgage lenders consider two important factors to determine if you qualify for a mortgage: the likelihood that you’ll pay your loan as agreed (also known as creditworthiness); and your ability to pay (also known as capacity). While creditworthiness is determined based on your credit score, capacity is largely measured by your income and job status.
If your credit is great and your income is sufficient to qualify for the loan, there’s one more catch: A lender isn’t going to take your word for it when it comes to where you work and how much money you earn. For most types of loans, your employment status and income must be verified by your employer.
“Being on maternity leave can create issues, but it doesn’t have to,” says Casey Fleming, a Silicon Valley-based mortgage advisor and author of “The Loan Guide: How to Get the Best Possible Mortgage.”
“All lenders are required to determine (and document) that your income they use to qualify you for the loan is stable, predictable and likely to continue,” Fleming explains. “This means as long as your employer is willing to verify in writing that you will be able to resume your previous position (or a similar one at similar or higher pay) as soon as your maternity leave is over, most lenders will approve and close the loan.”
Most lenders, Fleming adds, will require a documented return date. Some lenders might also require that you actually return to work and prove it by providing at least one paycheck documenting your post-maternity leave return.
Do I have to tell my lender I’m pregnant?
In short, no. You are not obligated to tell your lender if you are pregnant or planning to become pregnant when you apply for a mortgage. Your lender is also not permitted to ask whether you are pregnant — this would violate the Equal Credit Opportunity Act.
Similarly, if you are already on maternity leave, your lender is not allowed to operate under the assumption that you will not return to work after your leave ends.
Keep in mind, however, that if your lender calls your employer to confirm income and employment while you’re on maternity leave, your employer is free to disclose that information.
How to make the mortgage process easier while on maternity leave
If you’re planning to purchase a home while on maternity leave, here are a few steps you can take to potentially make the process go smoother:
- Shop around. Different mortgage lenders have varying criteria, and many might be willing to work with borrowers in special situations (maternity leave or otherwise). Compare current mortgage rates and get multiple quotes to find the best fit for you and your timeline. Also, regardless of what the lender approves you for, be sure to consider how much home you can afford before committing to a certain loan amount.
- Work with a mortgage broker. Rather than applying for a loan with a bank or mortgage lender, Fleming recommends working with a mortgage broker who can shop for loans from different lenders on your behalf.
- Get an approval letter in writing upfront. If you’re on maternity leave (or soon to be), Fleming also recommends verifying in advance that the lender is willing to work with your employment status. Should the lender refuse your request, Fleming suggests moving on and finding a different lender.
Of course, if the timing works for you and you can close on your mortgage before you begin maternity leave, like Jane, you could spare yourself a lot of extra hassle.
How to report maternity leave discrimination
You should expect any mortgage lender to ask for proof of employment and income — this is a normal part of the loan qualification process. It’s also not unusual for lenders to have you jump through a few extra hoops if you’re on leave from your job, maternity or otherwise.
“Mortgage lenders want to make loans — that’s why they’re in business. However, they all sell their loans (even the big banks), so they do want to be sure that the loan will be purchased by an investor after the loan is made,” Fleming explains. “Because of this, some lenders are more conservative than others and less flexible in lending to someone on any sort of leave.”
Nonetheless, some lenders have crossed the line, even allegedly requiring women to end maternity leave and return to work in order to have their mortgage applications approved, the U.S. Department of Housing and Urban Development (HUD) reports. According to HUD, “Refusing to approve a mortgage loan or provide refinancing because a woman is pregnant or on maternity leave violates the Fair Housing Act’s prohibitions against sex and familial status discrimination.”
Still, the agency has gotten complaints from borrowers who claim to have been discriminated against by mortgage lenders because they were on maternity leave. It has fined numerous mortgage companies since 2010, including a $5 million settlement with Wells Fargo Home Mortgage in 2014 to resolve allegations of discrimination against women on maternity leave.
If a lender requires you to take a few extra steps to prove your income during maternity leave, that’s not necessarily a cause for alarm. Yet if you feel like a mortgage lender is breaking the law and violating your rights, you have the right to file a complaint and HUD will investigate your claim at no cost.