Having a baby is possibly the most exciting time in a person’s life. It’s a time of joy, but for many people, it’s also a time of worry.
Some look at their home and suddenly realize their living space is too small; they need a new home, and they need it fast. But with upcoming maternity leave, and the temporary drop in income, many people are concerned they won’t qualify for a loan until the maternity leave is complete.
Fortunately, there are established practices that help you get the loan you need, even when you go on maternity leave.
Getting Approved for a Loan While On Maternity Leave
What Does The Law Say About Maternity Leave and Mortgages?
There are a few important pieces of legislation that address maternity leave, but none are more important than the Family and Medical Leave Act (FMLA), which was passed into law in 1993. This act was passed with a goal of balancing workplace demands with the needs of raising a family, and has been essential for guiding the relationship between employers and employees during medical events, including the birth of a child.
Any employer with over 50 employees must adhere to the FMLA, but it only applies to employees who have been with the company for a full year and work at least 24 hours a week.
As it relates to maternity leave, the law states that an employer must hold a woman’s job while they are on maternity leave and allow them to return to work once the leave is complete. The employer must also continue to provide benefits, such as health insurance, while the employee is on leave.
Many smaller companies do not have to provide this service, but some states have created benefits for maternity leave. California, for example, allows a woman to collect temporary disability payments from the state; these payments are capped at approximately two-thirds of their regular wages.
Another law that applies to lending and maternity leave is the Fair Housing Act of 1968. This legislation made it unlawful to discriminate in real estate transactions, including mortgage lending. Among other qualifications, the Fair Housing Act made it illegal to deny a loan simply because the person is or will be on maternity leave, assuming they qualify under regular circumstances.
Calculating Income: Returning to Work Before First Payment
If you plan on returning to work before the first mortgage payment is due (or on the same day the first payment is due), the lender will use the “pre-leave” income amount. Essentially, they will use your previous income, the amount you made before going on maternity leave, for qualifying purposes. This is a fairly simple and straightforward way to get approved, as the lender basically needs income information from before your leave of absence.
Calculating Income: Returning to Work After First Payment
If you plan on returning to work after the first payment is due, income qualification can be a little more complicated. In this case, the lender will need to look at documents related to income as well as cash reserves. For example, if there is $15,000 left in a bank account after the closing of the loan (including down payment and closing costs) the lender can then divide the monthly mortgage payment into the reserves and calculate a “supplemental” income total, which will be based on number of months between the first payment and the return to work. With $15,0000 in the bank, if there are three payments before the return to work, the supplemental income would be $5,000. ($15,000 / 3 = $5,000)
How to Use Maternity-Leave Income To Qualify
No matter how you specifically calculate your maternity-leave income to qualify, you will need to provide a wide range of information to the lender, who will use these documents to help you get approved for the loan that fits your needs.
First, you will need to bring written verification of your intent to return to work once the leave of absence has been completed. This is simply to provide reassurance to the lender that you will resume your regular income once the leave of absence is complete. This document will need to outline the terms of employment, which should be the same as before the leave, and it will need to state the expected return to work, which should be agreed upon (and documented) by your employer.
You will also need written verification from your employer outlining a few important points. First, you’ll need documents that verify your eligibility to return to work once the maternity leave is complete. You’ll also need the employer’s written documentation agreeing to the date of your return to work.
For salaried employees, the lender may require a T4 tax slip from the year prior to the leave of absence. It’s also possible that the lender will need a letter verifying your employment. This letter should state when you were hired, when you expect to return to work, and your annual salary. If you receive an hourly wage, be sure to include the number of hours you work each week; if overtime occurs regularly, you can include that as well, along with verification of overtime pay from the past two years.
The FHA has specific guidelines on how they treat mortgage loans based on maternity leave income. Generally, the way your income is calculated will depend on when you return to work, either before or after the first mortgage-loan payment is due.
Other Leave-of-Absence the Can Qualify
In your lifetime, you may go through a leave of absence for a wide variety of reasons, and many of these are also covered by the FMLA. They are also recognized by lending institutions, such as the FHA and Fannie Mae, as legitimate reasons for missing work. As such, lenders can use many of the same principles that we outlined above for parental leave, short-term disability, workers’ compensation, or other temporary leaves of absence. In these situations, you will likely use the same process, including documentation and income calculation, that you would use for maternity leave.
Get Approved for a Mortgage Loan While On Maternity Leave
If you have questions about mortgage loan options while on maternity leave, contact the team at San Diego Purchase Loans. We’ll show you all the details so you can get approved for a top-quality loan that works best for your family!
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