Securing a mortgage can be a complex process, and adding maternity leave into the mix can make it even more challenging. However, understanding how maternity leave affects mortgage applications can help you better prepare and make informed decisions. This guide will explore the impact of maternity leave on getting a mortgage and provide tips to navigate the process effectively.
Understanding Maternity Leave and Income
Maternity leave in Canada typically involves a period during which you receive employment insurance (EI) benefits, which can be significantly lower than your regular income. Some employers offer top-up payments to supplement EI benefits, but this is not always the case.
Impact on Mortgage Applications
When applying for a mortgage, lenders assess your income to determine your ability to make regular payments. Maternity leave can complicate this assessment due to the temporary reduction in income. Here are some ways it can affect your mortgage application:
1. Income Reduction: Lenders may view your reduced income during maternity leave as a risk, potentially impacting the amount you can borrow.
2. Debt Service Ratios: Your gross debt service (GDS) and total debt service (TDS) ratios, which lenders use to assess your financial stability, may be adversely affected by the lower income during maternity leave.
3. Employment Verification: Lenders may require confirmation from your employer that you will return to work and at what income level. This verification helps lenders understand your long-term income prospects.
Leveraging Your Full Income While on Maternity Leave
If you or your partner is currently on maternity leave, your full income could still be used to qualify for the mortgage. As long as you are returning to work within 18 months to your same employer and can get a letter from them stating this, then your full income can be used (base salary or guaranteed hours per week applies; this does not work for any sort of overtime/bonuses you may receive). If you are not returning to work at the end of your maternity leave, you will not be able to use any of the income you are currently receiving while on maternity leave, as it is not guaranteed into the future.
Strategies for Getting a Mortgage on Maternity Leave
While maternity leave can pose challenges, there are strategies you can employ to improve your chances of securing a mortgage:
1. Plan Ahead
If possible, plan your mortgage application before going on maternity leave. Lenders will consider your regular income rather than the reduced maternity leave income, making it easier to qualify for a mortgage.
2. Provide Employment Confirmation
Obtain a letter from your employer stating your return-to-work date and confirming your salary upon return. This document may allow you to use your full return to work income on a mortgage application.
3. Consider a Co-Signer
If your income during maternity leave is insufficient to qualify for a mortgage, consider adding a co-signer. A co-signer with a stable income can help strengthen your application and improve your chances of approval.
4. Save a Larger Down Payment
A larger down payment reduces the amount you need to borrow, making you a less risky candidate in the eyes of lenders. This can offset concerns about your temporary reduction in income.
5. Work with a Mortgage Broker
A mortgage broker can provide valuable assistance in navigating the mortgage process while on maternity leave. Brokers have access to multiple lenders and can help find options that best suit your situation. They can also negotiate on your behalf to secure favourable terms and rates.
Frequently Asked Questions
Can I get a mortgage while on maternity leave?
Yes, you can get a mortgage while on maternity leave. However, it may require additional documentation and planning to demonstrate your future income stability to lenders.
Will my reduced maternity leave income affect my mortgage application?
Your reduced income during maternity leave can impact your mortgage application, as lenders assess your ability to make regular payments. Providing employment confirmation and planning ahead can help mitigate this impact.
Should I wait until I return to work to apply for a mortgage?
If possible, applying for a mortgage before going on maternity leave can be advantageous, as lenders will consider your regular income. However, if you’re already on leave, providing a larger down payment, adding a co-signer, and working with a mortgage broker can improve your chances of approval.
Conclusion
While maternity leave can complicate the mortgage application process, understanding its impact and employing strategic approaches can help you navigate these challenges successfully. By planning ahead, providing necessary documentation, and considering options like a co-signer or larger down payment, you can enhance your chances of securing a mortgage.
For personalized advice and to explore the best mortgage options for you, reach out to me, Alex Lavender, and we can go over all of the options available.