Finding out you're pregnant can come with a litany of emotions. Especially when it's your first baby, you know you're starting a whole new chapter in your life. Another exciting new phase in life is buying a home.
When these major life events overlap, you may find that excitement is overshadowed by anxiety and stress. Buying a home while expecting a baby or on maternity leave can be challenging, but it doesn't have to be. Our guide will help you apply for a home loan while pregnant or after having a new baby.
Can you be refused a mortgage if you are pregnant?
There are many reasons why someone may be rejected when applying for a home loan. Lenders must be able to trust applicants to keep up with their payments. This requires a detailed look at an applicant's current situation to predict their future ability to repay their loan. However, for some, their current situation may be a special circumstance that does not necessarily indicate what their future will hold. An example of such a situation is pregnancy.
This isn't a problem if you're buying a home with a spouse or partner who could be self-approved. If this is the case, you can still apply together or allow your partner to apply alone, which could simplify the process. However, if you depend on both your income and that of your fellow borrower to qualify for a mortgage, or if you are applying for a home loan yourself, it is important to understand how pregnancy or having a new baby affects your life process can affect.
You may have heard that pregnancy could put you off getting a home loan, so it's easy to feel like the odds are against you if you apply 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 present some challenges when applying for a home loan, making it difficult for lenders to predict your future ability to pay. So can you be denied just because you are pregnant? no But does pregnancy affect a mortgage application? Possibly.
Do you have to disclose the pregnancy when applying for a mortgage?
It's understandable if you're hesitant to tell a mortgage lender that you're pregnant or on maternity leave, considering how this information could affect your decision. One problem if you're on maternity leave while trying to get a mortgage approved is that you probably won't get the paycheck that matches what you normally would.
In addition, it may be unclear exactly what your future professional situation will be. For example, you may want to switch to part-time when you return to work. All of these factors can put mortgage lenders on high alert as they make it harder to predict whether you will be a reliable borrower.
Pregnancy in and of itself should not affect your application at all. In fact, there is no place on a loan application where you are required to state whether you are pregnant, so this information can remain completely confidential.
A mortgage lender does not have the right to ask you if you are pregnant or on maternity leave when you apply for a loan. You are under no obligation to disclose your pregnancy or maternity leave. However, disclosing this information is generally recommended as these life changes can have a significant impact on your household finances that your lender needs to know about.
If you tell your lender about your maternity leave, they won't be allowed to work on the assumption that you won't return to work after your leave ends, removing the greatest risk of telling them. Additionally, if your lender contacts your employer to confirm your employment and income, your employer is free to notify 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
Maternity leave looks different depending on where you work, how long you have worked there and your personal preferences. Most companies are required to give their employees up to 12 weeks of unpaid family leave, provided the employee has worked there for at least a year and could leave for a while without causing serious financial damage to the company. Parental leave ensures that the workplace continues to wait for the employee after returning from the time with the new child.
Some companies offer their employees paid parental leave. Mortgage lenders are more sympathetic to this type of vacation. More often, however, workers use other forms of paid time off, such as vacation days or sick leave, to bridge part or all of their absence.
For most parents who take time off to bond with their new child, the financial benefits come from a combination of paid time off from work and short-term disability benefits through their employer insurance. Some states require employers to offer this type of coverage for temporary medical needs.
Regardless of what type of parental leave you have, in the mortgage lending world, maternity leave is considered a type of temporary leave, according to the US Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac. Approving a home loan can be difficult in any temporary work situation, but our tips below might help you get approved.
How to get a home loan while pregnant or on maternity leave
To increase your chances of getting a loan while pregnant or on maternity leave, you should focus on making yourself a strong overall loan candidate, choosing a loan you can afford, and the terms of your maternity leave fully to make clear to the mortgage lender. Follow these actionable tips so you can start preparing for your home loan application today:
1. Get a loan before you go on maternity leave
Since it can be difficult to close a home during maternity leave, it is better to buy a home before you go on maternity leave if possible. This isn't just to make it easier for you to get a mortgage. It should also make for a smoother transition. Some couples may feel overwhelmed preparing for the arrival of a baby and may want to postpone home buying until the baby is born and they are on maternity leave, paternity leave, or both.
However, the reality is that this is a time of transition when most parents will have their hands full caring for their newborn, making this a particularly challenging time to start applying for a home loan, to cope with the search for an apartment and the move. If you know you are planning to buy a home, start looking early or wait until you have your baby and go back to work. However, we understand that there are situations when you may have no choice but to apply for a loan while on maternity leave.
2. Boost your savings account and minimize debt
If you need to apply for a loan while on maternity leave, you can increase your chances of approval by optimizing your financial situation outside of your temporary change in income. That means no new debt and paying off existing debt, as well as cushioning your savings account.
Lenders consider the money you have on hand along with your income to determine if you can afford a loan. So if your income seems lacking, you can use the money you have saved to make up for it. Because there are costs associated with the birth and care of a child, lenders may consider these expenses. So if you have more money saved, it shows that you are ready to make your payments, even with the additional costs you will soon or already incur from having a baby.
3. Find out about the details of your parental leave arrangement
As you near the end of your pregnancy, it's always a good idea to speak to your employer to make sure you're on the same page and understand the terms of your upcoming maternity leave. Make sure you have a plan for how long you will be away, what compensation you will receive while you are away and what your schedule will be when you return.
Establishing the details of your maternity leave is especially important when looking for a home loan — the more information you can provide to your lender, the better. If you can prove to your lender that your parental leave won't mean a sudden halt to your income or a permanent future job, you may be able to reassure them and secure a loan.
4. Determine what you can afford
When buying a home, it is always important to carefully assess your current and future financial situation to determine what mortgage payment you can afford. This applies regardless of what phase of life you are in and whether the picture shows a pregnancy or not. You're more likely to be 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 push yourself too hard. This is what lenders fear and what leads to foreclosures.
Expecting a growing family can affect your future financial situation, so it's especially important that you take the time to figure out what kind of mortgage payment you can afford. Deduct medical costs related to a birth and check-ups for your child, child care and any other new costs you incur. Your lender will think about these expenses as well, so it helps if you can show you've thought through your budget carefully and are asking for an appropriate loan.
5. Choose the right home loan
Another piece of advice for anyone looking to get a mortgage approved is choosing the right loan option. This may mean doing some research and checking out different lenders to compare offers. A credit advisor can inform you about your options and help you make the right choice. Choosing the right loan is crucial if you want to get approved.
In addition to traditional loans, there are special types of mortgages for veterans, those with low credit scores, those who borrow heavily, and other special circumstances. Find the right type of loan, an interest rate you're comfortable with, and the best plan for paying off your loan. Typically, conventional loans are designed to be paid off in 10, 15, or 30 years. If you're feeling a bit financially overwhelmed, you'll probably want to choose a longer period so each payment is lower and better suited to your budget.
6. Be transparent with your lender
If you're applying for a home loan while pregnant but before you go on maternity leave, you don't have to tell your lender about it, although they'll likely ask if you're aware of any upcoming changes in your household spending, and the answer here would be yes. Although you are not legally required to disclose your pregnancy, you must take the full disclosure route when applying for a home loan towards the end of your pregnancy or shortly after your baby is born.
Let your lender know the details of your maternity leave and let them know that you've thought ahead and calculated all your expenses so you don't get too spread out on the loan you're about to take out. Within 10 days of your home closing, your lender can call your employer to make sure you're still employed there and to verify your salary. So make sure your employer is prepared for that call and that there are no surprises for your lender if you do The employer says you are currently on vacation.
How to report discrimination based on maternity leave
A mortgage lender will likely ask for proof of employment and income, especially if you are on leave from your job for maternity or other reasons. While mortgage lenders want to lend, they need to be careful who they lend to. All mortgage lenders sell their loans, which means they need to be sure that the loan will be bought by an investor after the loan is made.
Because selling loans to investors can be a tedious process, some lenders are quite conservative in their borrower selection. In particular, some lenders will be less flexible when it comes to lending to a borrower who is on any type of leave, including maternity leave. Some mortgage lenders can walk the line between caution and discrimination against pregnant women.
While it is normal for the loan qualification process to require some additional hurdles, a lender should never require a pregnant woman to complete her maternity leave and return to work to obtain mortgage loan approval. In fact, the U.S. Department of Housing and Urban Development (HUD) considered this a violation of the Fair Housing Act.
Still, HUD has received complaints from borrowers that they are being discriminated against by mortgage lenders over 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 believe that a mortgage lender is infringing on your rights and breaking the law, you can make a complaint to HUD online, by phone, or by mail. HUD will investigate your claim and make a decision on the case at no cost to you.