Finding out you’re pregnant can come with a whole litany of emotions. Especially if it’s your first baby, you know you’re embarking on a whole new chapter of your life. Another exciting new chapter of life is when you purchase a home.
When these major life events overlap, you may find that excitement is overshadowed by anxieties and stress. Buying a home while you’re expecting a baby or on maternity leave can be challenging, but it doesn’t have to be. Our guide will help you navigate through the process of applying for a home loan while pregnant or after you’ve recently welcomed a new baby.
- Can You Be Denied a Mortgage if You’re Pregnant?
- Maternity Leave and Mortgage Approval
- How to Get a Home Loan While Pregnant or on Maternity Leave
- How to Report Maternity Leave Discrimination
- What You Need to Get Approved
- Lending Discrimination Laws
Can You Be Denied a Mortgage if You’re Pregnant?
There are many reasons why someone might be denied when they apply for a home loan. Lenders must feel confident that applicants will keep up with their payments. This requires taking a detailed look at an applicant’s current situation in order to predict their future ability to pay off their loan. However, for some, their current situation may be a special circumstance that doesn’t necessarily indicate what their future will hold. One example of this type of situation is a pregnancy.
This is not an issue if you’re purchasing a home with a spouse or partner who could get approved on their own. If that is the case, you could still choose to apply jointly or could allow your partner to apply on their own, which could simplify the process. However, if you depend on both your and your co-borrower’s incomes to qualify for a mortgage, or if you are applying for a home loan on your own, then it’s critical you know how a pregnancy or new baby might affect the process.
You may have heard that pregnancy could keep you from getting a home loan, so it’s easy to feel like the odds are stacked against you when you’re applying for a mortgage while on maternity leave. Fortunately, you cannot legally be denied a mortgage just because you are pregnant. However, the financial implications of pregnancy can create some challenges in the home loan application process that make it more difficult for lenders to predict your future ability to make payments. So, can you be denied just because you are pregnant? No. But, does pregnancy affect a mortgage application? Quite possibly.
Do You Have to Disclose Pregnancy When Applying for a Mortgage?
It is understandable if you are hesitant about telling a mortgage lender you are pregnant or on maternity leave, considering how this information could affect their decision. If you are on parental leave while you’re trying to obtain approval for a mortgage, one issue is that you likely aren’t receiving paychecks equal to what you would normally receive.
Additionally, it may be unclear exactly what your future employment situation will look like. Perhaps you’ll want to switch to part-time when you go back to work, for instance. All these factors can put mortgage lenders on the alert since they make it more difficult to predict whether you’ll be a reliable borrower.
Being pregnant in and of itself shouldn’t affect your application at all. In fact, there is no place on a loan application where you are expected to indicate whether you’re pregnant, so this information can be kept completely private.
A mortgage lender does not have the right to ask you whether you are pregnant or on maternity leave when you apply for a loan. You are under no obligation to tell them about your pregnancy or maternity leave. However, it is generally recommended that you do disclose this information because these life changes can have a significant effect on your household finances, which your lender needs to know about.
If you do tell your lender about your maternity leave, they are not permitted to operate under the assumption that you won’t return to work once your leave ends, which takes most of the risk out of telling them. In addition, if your lender contacts your employer to confirm your employment and income, your employer is free to inform them of your maternity leave status.
To better understand how maternity leave can affect the process, let’s take a moment to look at how maternity leave typically works.
Maternity Leave and Mortgage Approval
Parental leave looks different depending on factors like where you’re employed, how long you’ve worked there and your personal preferences. Most companies are required to provide up to 12 weeks of unpaid family leave to their employees, as long as the employee has been working there for at least a year and could leave for a while without causing the company serious financial harm. Parental leave ensures an employee’s job will still be there waiting for them when they return from their time with their new child.
Some companies may offer their employees paid parental leave. Mortgage lenders look more favorably on this type of leave. More frequently, however, employees use other forms of paid time off, such as vacation days or sick leave to cover part or all of the time they’re away.
For most parents who take time off to bond with their new child, the financial benefits come through a combination of paid time off benefits from work and short-term disability benefits through their employer-provided insurance. Some states require employers to offer this type of insurance coverage for temporary medical needs.
Regardless of what sort of parental leave arrangement you have, in the world of mortgage lending, maternity leave is considered a type of temporary leave, according to the U.S. Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac. In any temporary work situation, there can be challenges to getting approved for a home loan, but our tips below could help you get approved.
How to Get a Home Loan While Pregnant or on Maternity Leave
To bolster your chances of getting approved for a loan while you’re pregnant or on maternity leave, you should focus on making yourself a strong candidate overall for a loan, choosing a loan you can afford and making the terms of your maternity leave completely clear to the mortgage lender. Consider these actionable tips, so you can start preparing to apply for a home loan today:
1. Obtain a Loan Before You Go on Maternity Leave
Since closing on a house while on maternity leave can be tricky, you’re better off to purchase a home before you go on maternity leave, if possible. This isn’t just so you’ll have an easier time obtaining a mortgage. It should also make for a smoother transition. Some couples may feel overwhelmed with preparing for the arrival of a baby and want to put off purchasing a home until after the baby is born, and they are on maternity leave, paternity leave or both.
The reality, however, is that this is a time of transition where most parents will have their hands full caring for their newborn, making this an especially challenging time to deal with applying for a home loan, going house hunting, and moving. If you know you plan to purchase a home, start searching early, or choose to wait until after you’ve had your baby and gone back to work. We understand, however, that there are situations when you may not have a choice but to apply for a loan while on maternity leave.
2. Cushion Your Savings Account and Minimize Debt
If you need to submit a loan application on maternity leave, you can boost your chances of getting approved by optimizing your financial situation outside of your temporary change in income. This means avoiding taking on any new debt and paying down any debt you have, as well as cushioning your savings account.
Lenders will factor in the money you have on standby along with your income to determine whether you can afford a loan, so if your income appears to be lacking, you can make up for this in the money you have saved. Since there are costs associated with giving birth and caring for a child, lenders may factor in these expenses, so having more money saved will show you’re prepared to make your payments, even with the added costs you’re soon to or already experiencing from having a baby.
3. Find Out the Details of Your Parental Leave Arrangement
As you near the end of your pregnancy, it’s always wise to talk with your employer to make sure you are on the same page and understand the terms of your upcoming maternity leave. Make sure you have a plan for how long you’ll be gone, what compensation you’ll receive while you’re away and what your schedule will look like when you return.
Determining the details of your parental leave is especially important when you’re seeking a home loan — the more information you can provide to your lender, the better. If you can demonstrate to your lender that your parental leave won’t mean a sudden stop in your income or an indefinite employment future, you may be able to set their mind at ease and secure a loan.
4. Determine What You Can Afford
When buying a home, it’s always critical to carefully assess your current and future financial situation to determine what mortgage payment you can afford. This is true no matter what stage of life you’re experiencing and whether a pregnancy is in the picture or not. You’re more likely to get approved for a loan that fits comfortably within your budget than one that pushes the limits of what you can afford, so it’s wise to make sure you don’t stretch yourself too thin. This is what lenders fear and what leads to foreclosures.
If you’re expecting an addition to your family, this can impact your future financial situation, so it’s especially important that you take the time to figure out what sort of mortgage payment you can reasonably afford. Deduct medical costs associated with a birth and checkups for your infant, child care, and whatever other new expenses you’ll incur. Your lender will be thinking about these expenses, too, so it’s helpful if you can show you’ve thoughtfully considered your budget and are asking to borrow a reasonable amount.
5. Choose the Right Home Loan
Another piece of advice that applies to anyone looking to get approved for a mortgage is to choose the right loan option. This may mean doing some research and shopping around with different lenders to compare quotes. A loan adviser can help apprise you of your options and help you make the right choice. Choosing the right loan is critical if you want to get approved.
In addition to conventional loans, there are special types of mortgages for veterans, people with low credit scores, people borrowing a lot, and other special circumstances. Find the right type of loan, an interest rate you’re comfortable with, and the best plan for paying back your loan. Typically, conventional loans are designed to be paid off in 10, 15 or 30 years. If you’re stretching a bit financially, you’ll likely want to go with a longer period, so each payment is lower and fits better in your budget.APPLY TODAY
6. Be Transparent With Your Lender
If you apply for a home loan while pregnant, but before you go on maternity leave, you aren’t required to let your lender know, though they will likely ask whether you know of any upcoming changes to your household expenses, and the answer here would be yes. While you aren’t legally required to mention your pregnancy at all, if you’re applying for a home loan near the end of your pregnancy or just after you’ve had your baby, you’ll need to go the full disclosure route.
Let your lender know the details of your maternity leave, and let them know you’ve thought ahead and have calculated all your expenses, so you aren’t spreading yourself too thin with the loan you plan to take out. Within 10 days of closing on your home, your lender can call your employer to make sure you are still employed there and to verify your salary, so make sure your employer is prepared for this call and that there are no surprises for your lender if your employer states that you’re currently on leave.
How to Report Maternity Leave Discrimination
A mortgage lender will likely ask for proof of employment and income, especially if you’re on leave from your job for maternity reasons or otherwise. While mortgage lenders want to make loans, they must be careful about who they grant loans to. All mortgage lenders sell their loans, which means they need to be certain the loan will be purchased by an investor after the loan is made.
Because selling loans to investors can be a tenuous process, some lenders are quite conservative about who they select for loans. In particular, some lenders will be less flexible about lending to a borrower on any sort of leave, including maternity leave. Some mortgage lenders can cross the line from being cautious to discriminating against pregnant women.
Although it is normal for the loan qualification process to involve jumping through some extra hoops, a lender should never require a pregnant woman to end her maternity leave and return to work in order to receive mortgage loan approval. In fact, the U.S. Department of Housing and Urban Development (HUD) has deemed doing so a violation of the Fair Housing Act.
Still, the HUD has received complaints from borrowers about being discriminated against by mortgage lenders due to being on maternity leave. In response to these complaints, the HUD has fined many mortgage companies millions of dollars over the years, including large organizations like Wells Fargo Home Mortgage. If you feel a mortgage lender is violating your rights and breaking the law, you can file a complaint with the HUD online, over the phone or through the mail. The HUD will investigate your claim and issue a determination on the case at no cost to you.
We’ve created these guides to be a valuable resource to walk you step-by-step through your next adventure.
What You Need to Get Approved
There are some important documents you’ll need to get approved for your home loan. Some of these documents are common to all applicants, and some are unique to applicants on maternity leave. When you’re applying for your mortgage, be prepared to submit the following documents:
- Tax returns: Tax returns provide lenders with a detailed history of your income, which can help them predict how consistent your income will be in the future. Lenders may ask for one or two years’ worth of tax returns. Pay stubs can show what your current income is, but tax returns give a bigger picture to your lender of what your income looks like over the course of a year or two.
- Proof of income: To show your current earnings, you’ll need to provide some sort of proof of income. This will commonly come in the form of pay stubs, but it may look different if you are self-employed or receive alternative sources of income. For example, you could provide a record of direct deposits into your bank account of 1099 forms.
- Bank statements: Bank statements show your lender how much money you have on standby to cover a down payment and to provide some cushion to help you pay your mortgage even if you have some unexpected expenses come up. You may also need to provide documentation of other assets, such as life insurance.
- Gift letter: If you’re fortunate enough to have a family member or friend who wants to help you purchase a home by giving you a financial gift, then you’ll need them to write a gift letter, letting the lender know the money is from them and is not a loan. Lenders check to see how long money has been in your account, so if they see a large sum show up seemingly out of nowhere, they’ll want it to know about it.
- Maternity leave verification: If you’re on maternity leave, it’s critical that you have your employer compose an official, signed letter on the company letterhead that confirms the details of your leave. It should, at the least, state when you plan to return to work and whether there will be any change to the number of hours you work.
Having these documents ready to go will streamline your application process and will enhance your chances of getting approved, assuming your finances are in a state that will allow you to afford to purchase a home, even if you are temporarily on leave.
Lending Discrimination Laws
The Fair Housing Act is meant to prevent discrimination in housing over the basis of things like ethnicity, religion, sex, and more. One type of prohibited discrimination specified by the act is discrimination based on familial status — this includes women and couples who are expecting a baby.
Another law to be aware of is the Family and Medical Leave Act. This is the law that entitles most employees to time off without worrying about their job security for qualified medical and family reasons, which includes having a baby. The only exceptions are if you have newly been employed by a company, if the company is extremely small or if your salary is in the very top tier of the company, which indicates that your absence will have significant consequences for the company.
Eligible employees are entitled to 12 workweeks of leave over the course of a 12-month period, as long as those 12 weeks are within a year of their child’s birth. Most parents choose to take off just before or at the time of birth and use most of the leave for bonding with and caring for their new baby. This law is not gender-specific, so both mothers and fathers are entitled to parental leave.
Taking both of these laws into account, new parents are well within their rights to take time off to have a baby and to buy a house during this time. If a mortgage lender doesn’t want to approve your application simply because you have a new baby or a baby on the way, this is technically a violation of the Fair Housing Act. However, it isn’t always so simple. This is because mortgage lenders are allowed to reasonably evaluate whether you are a reliable or a high-risk borrower based on your financial history, current situation, and future.
Banks are often leery of granting loans to pregnant mothers because of the financial risks associated with this stage of life — this is why hedging your bets in every way possible to show you are a reliable borrower is crucial. If you think you have been discriminated against purely on the basis of pregnancy, you may want to seek legal counsel or simply try another lender.
Apply for a Home Loan With Assurance Financial
Does being on maternity leave affect mortgage applications? Yes. Does it mean you are automatically disqualified from buying a home? Absolutely not. Make sure you work with an understanding and attentive lender to work through the mortgage application process, so they see the full picture of your financial situation and not just a glaring risk.
At Assurance Financial, we care about our customers, no matter their stage of life. We work with you to help you find the best loan option for your budget and your preferences, so you can focus on welcoming your new baby into your family instead of stressing over the complicated process of buying a home. We have experts licensed in 43 states to guide you to the best, customized option for your life stage. You can also apply online with Abby in just 15 minutes. Get started today to get one step closer to owning a home perfect for your whole family.