Can You Get A Mortgage On Maternity Leave?
Can You Get A Mortgage On Maternity Leave? With a baby on the way (or already here), you don’t need any extra worries or stress. So it can be frustrating that getting a maternity leave mortgage isn’t always easy.
Having a baby can be an exciting time and many parents want to buy a home for their new family. I get a lot of questions from expectant mothers about eligibility for a mortgage during maternity leave. I always hear, “Can You Get A Mortgage On Maternity Leave?”
Yes, you can qualify for a mortgage during your maternity leave. Different lenders have slightly different rules. In general, you are eligible if you provide a letter from your employer confirming your pay and guaranteed hours before maternity leave and the expected date of return.
Can You Get A Mortgage On Maternity Leave?
The simple answer is yes, you can qualify for a maternity leave mortgage. In general, you are eligible if you provide an employment letter from your employer. You need to confirm your current payment rate, guaranteed hours and finally your expected return date. NOTE: Not all mortgage lenders have the same rules regarding parental leave.
Are the eligibility criteria different when I’m on maternity leave?
To qualify for a mortgage, whether you are on maternity leave or not, the criteria are the same.
For purchases less than 20% off, you must have a credit score of over 600. Most lenders prefer a credit score above 650 when the mortgage is insured.
The minimum down payment for the purchase of a house is 5% of the purchase price. This is the same for first-time home buyers, emerging home buyers, and customers on maternity leave.
Lenders will calculate how much you qualify for based on your income, living expenses and debt payments. The ratio of household income to expenses is called the gross debt service ratio (GDS). The ratio of income to total debt payments is called the total debt service ratio (TDS).
Whether you are pregnant or not, your GDS must not exceed 39% of your gross income. Your TDS ratio cannot exceed 44% of your gross income.
What are the mortgage rules for maternity leave?
- Credit score greater than 640 (anything less generally requires a strong co-signer, an immediate family member, ie spouse/partner, parents, siblings, grandparents).
- 100% of your earned income can be used towards your home loan, as long as you return to work within 12 months of your cut-off date.
- 60% of your income will be used if you return to work more than 12 months after closing.
- Letter of employment stating the date of return to work.
- If you are self-employed or do not have a guaranteed salary or hours, you must use 2 years of T4/NOA to qualify at the percentages mentioned above.
- Whether you are pregnant or on maternity leave, lenders cannot discriminate against you or prevent you from qualifying for mortgage financing.
What is in the Employment Letter?
For your application to be assessed at 100% of your typical income, you must provide the bank/financial institution with a “return to work letter”. You must declare your employment status. This letter must contain:
- Your original start date.
- Plan to return to work date.
- Job title and income details.
- A clause stating that you will receive your full income from work again. Regardless of the T4 of previous years or the Message of evaluations.
- It must be on company letterhead.
- You must have the current date and contact details.
Getting a mortgage during maternity leave – Can You Get A Mortgage On Maternity Leave?
Having a baby is an exciting time. For many, this means moving for more space.
If you’re considering moving while pregnant or with a child in tow, you may be wondering how it could affect your mortgage application.
It is possible to get a mortgage during maternity or parental leave. But your lender may ask to see more details about your income once you return to work.
A lender would like to know what changes you plan to make when you return to work, for example, if you have fewer hours or work part-time.
While you’re on maternity or paternity leave, you’ll want to know if you can afford the mortgage. Create a new budget, taking into account any salary cuts to understand this.
Does maternity leave affect applying for a mortgage?
Parental leave can affect your ability to get a mortgage. Lenders will assess your income after your maternity or paternity leave ends to make sure you can afford the mortgage.
After this period, they also need to know what your expenses are. These can increase due to the costs of childcare.
It is important to be open with your lender if you are expecting a baby. You must provide information about how much you will earn when you return to work and details of any changes in your working conditions.
How to Get a Mortgage during maternity leave?
Here are three essential tips to follow when applying for a mortgage during maternity leave:
1. Calculate your budget
If you are still looking for a home to buy, think about how having a child and taking maternity leave will affect your finances. This will help you decide if you can afford the mortgage payments on a particular property given the growth of your family.
If you want to get a mortgage based on your usual full-time salary, make sure you can still make the monthly payments while receiving your lower maternity paycheck. Lenders may want to see proof of what additional income you will be using to pay this off. For example, money in a savings account, your partner’s salary or a gift from a family member.
At the same time, think about the longer term. Estimate how much you will need to spend on childcare when you return to work. Your lender will want to see that you have taken this into account. So if a family member is taking care of your child for free, you may need to explain this to your lender.
2. Use a mortgage broker
A mortgage broker can help you find a lender who is used to working with people on parental leave and is willing to lend you money based on your full-time salary.
This saves you time when looking for offers from unsuitable lenders. And it helps prevent your application from getting rejected, which could hurt your credit score.
3. Request a reference from your employer
To support your mortgage application, ask your employer to write a letter confirming:
- That you go back to work
- Your return date
- The hours you will work
- Your salary
If you plan to return to work part-time, your lender will determine how much they want to lend you based on your new salary.
What can working with a mortgage advisor do for me?
A mortgage advisor can guide you in applying for a pre-mortgage. In addition, a broker will help you find a lender that fits your immediate needs. Most real estate agents also require (before showing you homes on the market) a pre-mortgage approval letter confirming your eligibility for a mortgage.
As a brokerage with access to over 40 lenders, we can send your mortgage application to lenders who will take 100% of your usual income into account (NOTE: if you return to work within 12 months of the start of your maternity leave). This means that you are eligible for the same amount of financing that you would receive if you were not on leave.
You also have access to the best mortgage rates available.
How much can I borrow for a mortgage with maternity leave?
Every lender is different. First, you need to find a lender who will lend you based on your full-time salary rather than your maternity benefit.
Some lenders lend you up to three times your income for a mortgage, others can extend it up to five times your income.
How much deposit is required for a maternity leave mortgage?
This depends on your situation. Typically, you’ll need a down payment of at least 10% of the property’s value, but a larger down payment opens you up to more mortgage deals.
Should you tell your lender if you are pregnant or on maternity leave?
The simple answer is: Yes, this is because it will have a significant impact on your finances, which your lender should be aware of.
Tell your lender about a pregnancy
Let’s take the pregnancy first. When you apply for a mortgage, your lender will ask if you expect “major changes” in your financial situation. Essentially, that’s anything that can affect your ability to keep track of your mortgage payments.
Expecting a baby is a change in your situation and you have to be honest about it. That will be an extra mouth to feed, clothe, and entertain… and this will affect your lender’s rating of your lender.
If they decide they can’t lend you, you’d rather know about it sooner or later, so you can close a new mortgage agreement.
Inform your lender about maternity leave
If you haven’t started maternity leave yet, the recent paychecks you give the lender don’t show that your income is about to drop.
You still need to explain to your lender what will happen so that they can make an informed decision about your application. Otherwise, you risk being accused of mortgage fraud, even if you didn’t mean to break the rules.
In general, it helps to give your lender as much information about your financial situation as possible to find a mortgage agreement that works for you. And, more importantly, one that you can easily afford once the baby is born.
What do maternity and paternity leave professionals want to know before taking out a mortgage in Winnipeg MB?
Lenders cannot ask or refuse
Mortgage lenders in Canada cannot ask if you are pregnant or on maternity leave. This rule is there to protect the rights of expectant and new parents. Legally, they can’t refuse you a mortgage because you’re getting older. If you are in your second or third quarter, a face-to-face meeting will prove this fact, but take your word for it that you will continue to work as hard as anyone you approach for a mortgage.
A change in income is a change in income
While the major banks may not openly question your intention to return to work, they have the right to count your current income as the income applied to your mortgage, even if it goes back to the level at which it was before maternity leave. Simply put, if you are on maternity leave, your current income is your income. As such, it can limit the pre-approval you’ll be approved for, although lenders will still consider the big picture, including assets, credit scores, expenses, and whether or not you’re part of a two-income household. Connecting with the right lenders is key, which brings us to the next point.
Let a broker do business with lenders
Some Winnipeg lenders don’t have the best track record when it comes to providing home financing to those on maternity leave. They may require you to be back to work within 60 or 90 days of your return and impose all kinds of provisions (within legal limits) to mitigate what they consider to be a higher risk to them.
Can You Get A Mortgage On Maternity Leave: Frequently Asked Questions
Do you have any questions about applying for a mortgage with maternity leave? Then take a look at our frequently asked questions:
How does maternity leave affect a joint mortgage application?
With a joint mortgage application, the lender can use the combined income of both applicants to determine how much they want to borrow from you. If either of you is on parental leave when you apply, convince the lender to use that person’s full-time salary (not your maternity or paternity benefits) in your calculations.
Is there a difference whether it is maternity or paternity leave?
Not really. The lender looks at the effect of your leave on your income, whether it is maternity or paternity leave.
Can You Get A Mortgage On Maternity Leave?
Yes, you can transfer your home to a new mortgage lender during your maternity leave. As with a new mortgage application, you’ll need to find a lender who will base the amount they’re willing to lend you on your regular full-time salary, not your reduced maternity benefit.
Can You Get a Bad Credit Mortgage While on Maternity Leave?
This can be tricky, but it’s not impossible. The thing is, many of the lenders that give you a mortgage based on your regular paycheck (not your maternity benefit) don’t offer bad credit mortgages.
But don’t give up yet! A mortgage broker can still help you find a mortgage deal that’s right for you.
Can you get a mortgage on maternity leave and are self-employed?
Yes, you can. This can be more or less challenging depending on your situation. With stand-alone mortgages, lenders usually base the amount they want to lend you on your year-end or SA302 accounts. But when you go on maternity leave, they want to know how your time away from your business will affect your income.
Getting a mortgage is probably easier if you can prove that you have employees who run the business while you are away. If you are a sole proprietor or the company cannot continue without you, this has a huge impact on your income. Therefore, lenders may be less willing to give you a mortgage.
Conclusion – Can You Get A Mortgage On Maternity Leave?
There is no downside to buying a home and qualifying for a mortgage during maternity leave. I recommend that you watch your budget because your cash flow is now lower.
Lenders in Canada have slightly different perspectives on maternity leave. Some lenders want you to be back to work within 60 or 90 days of your return. Some lenders are more flexible and only require confirmation of your repayment date.
Working with a mortgage broker is beneficial as they can help you highlight the differences between different lenders so that you can make an informed decision.