Starting a family can be one of the most exciting and fulfilling times in anyone’s life. It also means that your finances and expenses will shift, and you’ll need to consider additional expenses while reducing your income temporarily or, in the case of maternity leave, for several months.
Many parents or soon-to-be parents may worry about the effect that taking maternity leave will have on their ability to qualify for a mortgage. Income is one of the primary components that lenders take into consideration when approving mortgage applications, which is why it’s natural to worry if taking leave will impact your eligibility.
Luckily, most lenders in Canada will still consider your full salary while you’re on maternity leave as long as you have a set return-to-work date within the year. So, generally, maternity leave should not have a negative effect on how much you qualify for in terms of a mortgage.
However, there are some exceptions to the rule, so it’s essential to familiarize yourself with your lender’s policies around maternity leave and income. Some lenders may only consider a reduced income, while others may only consider a full salary if you return to work within two months of closing the mortgage. Others may use just 65% of your income for qualifying purposes.
Because each lender may have slightly different policies regarding maternity leave and mortgages, it’s crucial to communicate with your lender and inquire about the specific policies regarding income while on maternity leave.
It’s essential to note that lenders do not have the legal right to turn down mortgage applicants simply because they’re on maternity leave. While the lender has every right to ask questions about your current employment status and how much you can contribute to the mortgage payments, they can’t refuse to grant the mortgage because you’re on maternity leave.
However, you’ll need to demonstrate to the lender that you’re continuing to receive income from your employer and have a set return-to-work date in writing. A recent pay stub is required for employed individuals, which may be impossible if you’re on maternity leave. Without this information, the lender has no assurance that you will continue working and, therefore, your ability to contribute to mortgage payments.
Lenders want to be sure that the employment will continue so that they can have faith in your ability to pay back the mortgage. If you don’t have a return-to-work date in writing, the lender may question your work status. This is because if you’re taking leave for a non-maternal reason, the lender may view it as an unreliable source of income. For example, taking a year-long sabbatical to travel would raise the lender’s eyebrows. Therefore, make sure you’re clear about why you’re taking leave and the duration.
It’s crucial to keep in mind that maternity leave policies may vary depending on your industry or company. For example, some employers might offer a more extended period of paid leave than others. These variances could impact your income and mortgage qualification.
Are you planning to buy a new home or refinance your mortgage while on maternity leave? If so, you need to consult with a mortgage broker who specializes in working with expecting mothers. Getting a mortgage while on maternity leave may seem challenging, but it’s not impossible. Mortgage brokers can help you navigate the process and find a loan that suits your unique situation. Don’t let this opportunity slip away!