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Often, it isn't until couples have a new baby that they realize they need more space and decide to buy a house. But unfortunately these days going on maternity leave could actually hinder your ability to get approved for the home loan you need.
Maternity leave goes by so fast, it's barely a blip on the parenting radar. But today, increasingly conservative mortgage lenders take the temporary drop in income during that period very seriously -- so seriously, in fact, that they're denying some couples mortgages because of it, says The New York Times.
New quality control measures are to blame. Major lenders Fannie Mae and Freddie Mac now require lenders to recheck a borrower's employment and income status right before the mortgage is closed. For some lenders, seeing a recent salary dip -- even when disability payments are involved -- is enough to throw the whole deal. Though both Fannie Mae and Freddie Mac say that's not how the guidelines are meant to be interpreted -- borrowers simply need to provide proof that employment will resume when the leave time is over -- some lenders may use them to delay a loan until all borrowers are back at work. There's also the concern that a new mom may leave her job after maternity leave ends.
Erica Sandberg, author of Expecting Money: The Essential Financial Plan for New and Expecting Families and columnist at CreditCards.com, says banks are more invested than ever in lending only to good borrowers. "I urge everybody to put themselves in the place of the lenders," says Sandberg. "They need to lend money while protecting their own interests." But, she adds, "No one wants to be damned for having a child, especially when you know that you can repay the loan."
If you want to get a loan, you can prepare by making yourself the best candidate possible, says Sandberg. Here's her advice:
- Can your partner ask for a promotion or raise? If so, now might be the time. Since your lack of employment might have an effect on loan approval, make sure that his is rock solid.
- Take measures to boost your credit score. Work on getting your FICO score as high as possible -- well above 750.
- Save up. Offering a large down payment, higher than what other loan candidates are offering, puts you at an advantage.
- Avoid going on disability during the loan approval process. Getting extra financial help could be a big red flag to lenders
Sandberg rightly points out that once the loan is closed, you're free to do what you want. If you can time your mortgage process to close before going on maternity leave -- because legally you do not have to disclose your condition to lenders -- or after your maternity leave is over, you're less likely to run into trouble.
But like Sandberg says, banks can't make money if they don't lend money -- you can always take your business elsewhere. Don't be afraid to enter the mortgage approval process while you're pregnant, but do shop around to make sure that you're working with a lender who knows your situation and is willing to work with you.
Do you think new parents should be denied a home loan because they just had a baby? Chime in below!