Mortgage rates are at a 50-year low, and homes continue to get more and more affordable as prices drop. Great, right? Sure, if you have a solid credit score (think upwards of 720), a steady income, and, apparently, aren’t knocked up.
A recent New York Times article looked at the harsh reality expecting couples might be faced with: not being able to get a mortgage. The reasoning is that after the subprime mortgage crisis of 2008, banks are wary of whom they lend to. And if you’ve got a baby on board -- and, more specifically, maternity and/or paternity leave on the horizon -- banks may see that as a risk. William Howe, CMC, CRMS, President of the National Association of Mortgage Brokers (NAMB) says banks are less willing to take the risk of having a pregnant mother out on maternity leave not return to work, thus reducing the couple’s income and maybe decreasing their chances of being able to make their mortgage payments. “The trouble is that in the climate we’re in with mortgages and foreclosures, lenders have become very skittish,” he says. “Mortgage companies are skimming through loans and looking for reasons to make the lenders buy them back.”
While there are different types of mortgages -- and exceptions to every rule -- generally, lenders require a credit score of around 720, money in the bank that proves you can make a sizeable down payment of up to 20 percent, and proof of a steady income that will, in all likelihood, remain consistent or improve within the next three years. Lenders can’t ask you flat out if you’re pregnant, but they can ask you about your projected income -- and you’ll have to report any reduced or unpaid leave.
So what can you do? If you’re already pregnant and looking for a mortgage, and know you will go back to work, get a note from your doctor stating when you can return to work and a note from your employer with your expected salary. Also, up your chances of getting a mortgage by meeting with several lenders -- and be upfront if you’re planning on having a family in the (very) near future.
“Each lender will look at this circumstance perhaps a bit differently,” says John Courson, President and CEO of the Mortgage Bankers Association (MBA). “Looking at a credit file, particularly in the case where the woman is pregnant and on maternity leave, the underwriter really has to dig into all of the factors of that. What was her occupation and longevity of her position prior to the leave? You’re at the hands of the underwriter…and every company has their own criteria, so shop around.”
You might also consider having the person not on leave, such as if you take maternity leave but your partner doesn’t take paternity leave, take out a loan on his own -- if his income alone will allow him to qualify. Another route is to have your parents co-sign the loan if their income and credit score qualifies. “Most couples rely on a dual income, but if you have to close while your spouse is on leave, having your parents help is a perfectly legal option,” Howe says.
Of course, you can always just wait and apply for a mortgage after your maternity and/or paternity leave is over. Under the Family and Medical Leave Act (FMLA), you’re entitled to 12 weeks off as long as you’ve been at the company for at least a year, the company has 50+ employees, and your salary fits the requirements (for more details on whether or not you qualify, visit the US Department of Labor website.) But if you want a house now, or are upgrading to a bigger space because you have a baby on the way, keep your credit score solid by watching what you buy now.
“Some borrowers get in the situation where they make their credit applications, the lender certifies their credit, and between the time their loan is approved and the time they’re closing, they buy a new car,” says Courson. “What happens is within 24 hours of the closing, lenders will call up a new credit report. If they bought that car, they’re going to underwrite their loan based on their new liability. It might be okay, but it could also mean you no longer qualify.”
Howe agrees. “I’ve started telling my customers not to buy furniture or anything major like a new refrigerator until after their loans have closed,” he says. “It will hit your credit report, and you now have something else to add to your debt ratio.”