How Maternity Leave Impacts Getting a Mortgage

Some people see welcoming a new child into the family as the ideal time to move into a new home. However, getting a mortgage on maternity leave may come with some extra considerations. This guide reviews what you need to know and the best way to get approved for a loan while taking time off to spend with your new bundle of joy. 

Can I Get a Mortgage on Maternity Leave? 

In short, you absolutely can get a mortgage while on maternity leave. However, there are some important factors that may make the process tricky or limit the amount of money you can borrow. 

What Challenges Might I Run Into? 

The largest challenge you're going to encounter is your reduced income. Even if you've planned ahead and put away enough money to tide you over until you return to work, lenders care more about what you're currently making. They use your income to determine your debt-to-income ratio and general creditworthiness. 

For example, if you could afford to borrow $250,000 for a house but make half or less of your previous income, the lender may approve you for less. You could even be denied outright because of the income disparity. While you don’t need to disclose your pregnancy, lenders may have biases if they find out, so it’s essential to shop around to ensure fair treatment. 

You may also run into mortgage terms that are different and less than ideal than if you apply when you’re not on maternity leave. One resolution to this issue is to refinance your mortgage later if you need to move during your time off. 

Mortgage Rules for Maternity Leave in Canada 

If you’re applying for a mortgage in Canada while on maternity leave, it’s important to keep in mind the following: 

• Like any regular mortgage, you’ll still need a good credit score to qualify.
• You don't need to let your mortgage lender know you're pregnant; they can't force you to disclose this fact. 
• Lenders can't deny your loan if it's obvious that you're pregnant or already on maternity leave. However, they may saddle you with more difficult terms, making it feel like you can't get the loan you want. 
• You need to submit a letter of employment that indicates when you’ll return to work.
• Some mortgage lenders take pride in offering fair terms to clients with new children, so you should focus your efforts on dealing with these lenders instead of the ones that would take advantage of you. 

Documents Needed for Mortgage Qualification 

If you plan to apply for a mortgage while on maternity leave, knowing what documents you need to provide is important. On top of the usual information required to qualify, you must also provide a pay stub and employment letter. Here are some things to keep in mind:

• Income statements, your letter of employment and other forms must be dated within 30 days, or you won't be able to submit them with your application. 
• Your maternity leave income will be the number many lenders use to determine whether to offer you a loan, but you can indicate your return to work date. Some lenders will consider your regular income beyond this date during underwriting. 
• Lenders might call your employer to confirm your employment and that you maintain the position you've indicated. They have the right to do this, so let your supervisor know to expect a verification phone call. 
• If you receive direct deposit, you need to show a bank statement that shows the money in your account. 
• If you're on probation at work, this could make it more challenging to be approved. 

Should I Inform the Mortgage Lender I'm Pregnant? 

You don't need to tell your lender that you're pregnant, so if you haven't taken your leave yet, you could apply with your current income. If you begin to exhibit signs of pregnancy, a lender could potentially use it against you (while it’s not right, it’s possible). Working with a mortgage broker is the best way to handle this situation because they will do most of the work on your behalf. 

Other Things to Keep in Mind

• If you’re self-employed, qualifying for a mortgage may be more challenging, but this is a case-by-case basis.
• If you go over the standard maternity leave time (12 months), some lenders may reduce the reference income for evaluating your eligibility.
• If you work a casual or hourly job, the required documentation may be different because there’s often no guarantee that you’ll return after your leave.

The Importance of Working with a Mortgage Broker 

The obstacles to qualifying for a mortgage on maternity leave largely depend on income structure and duration of the time away. Mortgage brokers understand this complex landscape and can help you navigate these confusions and roadblocks. That’s where I come in! Reach out to me today to learn how I can help you and advocate on your behalf.