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For many families, buying a home and having a baby are two big dreams on life’s to-do list. But what if you want to realize those dreams at the same time? 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 maternity leave (or any other type of leave, for that matter) can also affect whether or not you’ll be able to buy.
“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.” To ensure a seamless process, make sure you know your rights and understand your lender’s concerns.
How does maternity leave impact the mortgage process?
When you apply for a mortgage or home loan, mortgage lenders consider two important factors to determine if you qualify: the likelihood that you’ll repay your loan as agreed (also known as creditworthiness) and your ability to make your mortgage payments (also known as capacity). While creditworthiness is determined based on your credit score, capacity is largely measured by your income and job status.
Even 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 employer must verify your employment status and income.
“All lenders are required to determine (and document) that the income they use to qualify you for the loan is stable, predictable and likely to continue,” says Fleming. “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.”
Going on paid paternity or maternity leave can actually make things easier when it comes to getting a mortgage. If your income level won’t change — or, at least, won’t take a huge dip — you’ll still have continuous cash flow. That means you won’t have to put your homebuying dreams on hold because you or your partner isn’t working.
Your employer doesn’t have to necessarily be the one cutting the checks, either. While the leave many employees are guaranteed under the Family and Medical Leave Act (FMLA) doesn’t include compensation, some states do have paid family leave programs. If you live in one of those states, getting a mortgage may be easier because your lender will know you’ll have at least some income to help with your home loan payments while on leave.
Most lenders, Fleming adds, will demand 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 before they’ll issue approval.
As long as your employer is willing to verify that you will be able to resume your previous position (or a similar one) when your maternity leave is over, most lenders will approve and close the loan.— Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage.
Do I have to tell my lender I’m pregnant?
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 expecting or trying to start a family — doing so 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. So it behooves you to be transparent — you want you and your employer to be on the same page, and you don’t want to give the impression that you were trying to conceal anything.
How to make the mortgage process easier while on maternity leave
If you’re planning to get a mortgage while on maternity leave, you likely need to strategize the process. 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 the sum 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 dealing directly with a financial institution, consider engaging a mortgage broker who can shop for loans from different lenders on your behalf, and might know which ones are — and aren’t — liable to create problems for people in your position. “Some lenders are more conservative than others and less flexible in lending to someone on any sort of leave,” says Fleming.
- 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 someone 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 — and particularly before you inform your employer that you plan to take leave — you could spare yourself a lot of extra hassle.
Documents needed for getting a mortgage while on maternity leave
If you’re planning to get a mortgage on maternity leave, putting together your documentation before going on leave can help you prepare for the application process. Key items you should get together include:
- A letter verifying your employment status, including the date you were hired and your anticipated return-to-work date. Be sure this includes salary information.
- A W-2 (U.S.) or T-4 (Canada) tax form documenting your income from the most recent tax year.
Your lender may also ask for pay stubs and bank statements substantiating your pre-leave income going several months back, so having these ready can help you move through the application process more smoothly.
Options for taking maternity leave and applying for a mortgage
You might decide to apply for a mortgage before going on maternity leave to begin the process before your family expands. Keep in mind, however, that your final loan approval may hinge on documentation proving your return to work and your income — especially if your leave is unpaid.
Buying a house while on FMLA may mean applying for a mortgage while you’re experiencing an income gap, so you’ll want to reassure your lender that you will return to a regular income at a certain date. If you’ll receive paid leave and you do not anticipate an interruption in pay, you might have a smoother loan underwriting process.
If you won’t receive paid maternity leave, it’s a good idea to build up your cash reserves in advance. Ideally, you can substantiate your return to work, but in addition, the more you have saved or been gifted to support the home-buying process, the more confident your lender will be in your ability to close and make timely payments.
If you will earn income during your leave but at a different rate than usual, be sure to get documentation from your employer outlining the specifics of your temporary income and the dates it will be effective. The more thoroughly you can document your plans and their impact on your income, the better.
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 home loan qualification process. Since much is riding on your ability to afford your mortgage payments, they naturally want to be fully informed about any foreseeable interruptions in your income, factoring that into their underwriting.
Nonetheless, some lenders have crossed the line, even allegedly requiring women on leave to return to work to have their mortgage applications approved, the U.S. Department of Housing and Urban Development (HUD) reports. This is illegal. “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,” according to HUD.
The agency has gotten complaints from borrowers who claim to have been discriminated against 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. If you feel like a mortgage lender is breaking the law and violating your rights, though, you should file a complaint and HUD will investigate your claim at no cost.
Maternity leave FAQ
That depends on your state, your employer and your personal choice. Under federal law, many employees are entitled to 12 weeks of job-protected, unpaid leave under the Family and Medical Leave Act. In addition, several states offer additional unpaid or paid leave and around 40 percent of private employers offer paid leave of some sort. The average maternity leave lasts 10 weeks, paid or unpaid, according to Zippia.
Strictly speaking, maternity leave is the same as paternity leave and is more properly called parental leave — as the protections and rules under the FMLA apply to parents of any gender. Whether you plan to take maternity or paternity leave, stepping away from your job can raise a red flag for your lender. Again, though, this gets easier if you plan to take paid leave. Documenting your return date can also assure your lender that you will have the income stream required to make your home loan payments.
The Family and Medical Leave Act — or FMLA — entitles certain employees to up to 12 weeks of unpaid but job-protected leave to have a baby and care for their newborn. It does help here because it gives your mortgage lender (and you) certainty that your job — and, consequently, your income — will be there when you get back from leave.