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Getting a Home Loan with Maternity Leave Income

Orange County, CA – Learning that you’re going to have a new addition to the family sometime in the next 40ish weeks is always a momentous event. Learning it while you’re thinking about buying a house for said family can cause some interesting cognitive dissonance. How can you qualify for a mortgage if the qualification process requires regular income and you’ll have less because you’re on maternity leave?

The answer is: it depends on your lender.

The First Steps

The rules are complex, but we’ll try to put them as simply as possible.

First, if you’ll be on maternity leave when purchasing a home, the bank is obligated to consider it a Verification of Employment: Being on maternity leave doesn’t mean you’re not employed. Instead it’s considered a temporary leave of absence.

Next, the lender has to get written notice of your intended day of return to regular employment. This comes from you and your employer.

Here are some important points to note regarding your qualifying income. If you’re going to return to normal duties (and income) before the first mortgage payment is due then you’ll be abe to qualify with your full income.  Or if your temporary leave income is greater than or equal to your normal income then the lesser of the two is used.

Increasing Maternity Leave Income

Not all expecting mothers will get credit for their full income. If you’ll still be receiving reduced income by the time of your first mortgage payment there’s an alternative to supplement your income.

Your maternity leave income can be supplemented with available liquid reserves.  Your available liquid reserves include money in checking/savings/retirement funds less the cash needed to close your loan. The supplemental income amount is equal to your liquid reserves divided by the number of months before your regular income kicks back in.

So let’s show you how this works. Mary normally earns $6,000/month. Her maternity leave income is reduced to $2,000. So Mary needs to supplement her $2,000 income. She has $30,000 in liquid assets but needs $18,000 to close her loan. That leaves $12,000 in available liquid reserves. Mary’s first mortgage payment begins July 1st. She does not return to work until November 1st. That’s four months away. Her available liquid reserves are divided by 4 giving her an additional $3,000/month in supplemental income. That puts her total qualifying income at $5,000/month.

If your total qualifying income ends up higher than your normal base wage the underwriter will use your base wage instead.

In the past lenders’ methods of dealing with maternity leave and other temporary leave were prone to lots of exceptions. This way, you can count on having a reasonable shot at qualifying for a mortgage while on maternity leave.

If you don’t know what to expect when you’re expecting…a new home, give me a call. I’ll help you maximize the income that you can qualify with.

Scott Storace

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