How Maternity Leave affects your mortgage application

If you're having your first baby or your third nothing changes housing needs quicker than a growing family.  It's the most natural time to think about a move but if you're on maternity leave or facing one you are also dealing with adjusted incomes. So let's take a look at how lenders deal with maternity leaves.

Generally speaking, and I have to be general because of the vast number of lenders, the rules are simple.   If you're applying for a mortgage you need to declare your income.  Your income is the amount of money you were making before you started your maternity leave.  In order to substantiate your income you need the following:

• An employment letter from your employer that states when you started and how you are paid.  If you're paid hourly it will need to include the number of hours a week they guarantee you. The letter will state that you're currently on maternity leave and will include your expected date of return.
• If you're an hourly employee and wish to declare any overtime you will also need to provide copies of your tax returns for two years of employment showing consistency of income.
• if you are salaried you should provided a T4 for your last full year of employment.

If you don't have any of the above you move into the "gray" area and start asking for exceptions.  Exceptions are granted based on other strengths of your application such as, length of employment, size of the down payment, credit history etc.  Exceptions are dealt with on case per case bases but the more detail you can present to the lender the more likely you will get your exception. In my practice as a mortgage broker I would typically gather all the information and organize it to present to the lender.  It's important to show a clear financial picture of your ability to service the debt.  You don't want to get in over your head especially at this time of your life. 

Now with that being said let's talk about what you can afford.  I often have people in shock when I tell them how much the "qualify" for.  Never in their wildest dreams would they consider that much debt.  So here's where your common sense comes in.  Start with a budget and here is one of my favorites from CMHC.   Knowing what you can live with before you go looking for a mortgage will put you in the driver's seat. For example, it may not be wise to use your pre-maternity leave income to qualify for a mortgage if you're not planning to return. 

I also want to provide you with this work sheet also from CMHC (Canada's Mortgage and Housing Corporation) that will help you calculate your debt servicing ability .  I know it's long and tedious but well worth the effort.   Don't get frustrated.  If this doesn't work for you send me an email and I will send you another one.  They're too many for me to list here but the bottom line is you need to do your own work.  Advertising would have you believe you should shop for the best mortgage but I think you should know what you want before you go looking.

As always if you have any question email me.  If you don't get an answer email me again. We try to answer them all but we do miss some from time to time.  Have a great day.