Looking to buy a home with a munchkin on the way? The details of your temporary leave may impact your ability to perform when you identify a home. Here’s what you need to know when taking a maternity leave of absence and how a home loan lender will view your income status…
Current Income Or Occupational Income?
Generally, when you initially decide to get pre-approved with a mortgage company, they’ll take your salary and/or compensation figures into account when determining how much house you can qualify for using your monthly pre-tax income. Supporting documentation for this includes your lender with recent pay stubs, two years tax returns, and W-2s for the last two years. This is what they will base your buying power on. So it stands to reason if this income stops or is paused then they would have some cause for concern.
How it factors in…
If you are not receiving any maternity leave income on your maternity leave of absence
Then in order to purchase your new home, you need to be back to work from your maternity leave to use your regular employment compensation income usually evidenced with a pay stub
If you are receiving maternity leave income
Then the lender will want in writing from your employer that you will be back to work within the next 60 days in order for you to close escrow on your home if you need your employment income to qualify. Alternatively, if you’re going back to work longer than 60 days out, this needs to be fully documented and supported, in other words, the lender will want to justify why you’re going back to work longer than 60 day requirement in using your employer’s income to qualify.
Why Maternity Leave Income Is Crucial To Buying A Home
The lender is required to demonstrate every loan they originate is made to borrowers who can demonstrate and prove an ability to pay. In today’s lending environment, the payment to income ratio (also know an debt to income DTI) is a strong measurement of how house a borrower can actually afford given their income and other monthly liability payments. The key is that if you are planning to take an upcoming maternity leave while looking for a home, establishing maternity leave income is key because that will give you the ability to have your lender use your current wages for qualifying purposes when you ultimately go back to work.
If maternity leave income cannot be generated during the time you’re on maternity leave away from your normal employment, then the lender would either have to use what income is on the application with any other party whom you might be applying for the mortgage with or you’d have to begin the house hunt when you’re back to to the normal work schedule after the maternity leave has ended.
Possible Alternatives Offsetting An Income Disallowance
- adding a cosigner
- putting more money down
- paying off consumer debts
If you know, you plan to take maternity leave just before buying a house, take this into consideration when you are making your offer. Of course you can’t plan for the exact dates, but you can have a conversation with your lender about this when you are getting pre-approved at the forefront of the home search process. Making sure to inform your lender about a possible upcoming maternity leave is a wise move so your lender can plan for a smoother process allowing you to focus on what counts and still get the keys to your den successfully.
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