The Greenhouse
by Pine

Can you get a mortgage while on maternity leave?

In Canada, you’re still able to apply and potentially qualify for a mortgage even if you are on maternity leave.

Looking to start a family and get a mortgage?

Starting a family can be one of the most exciting times in your life. This also could mean that you might be looking for a new house or bigger space. And while you’ve probably started perusing for your new big move, it’s important to note that because when you’re on maternity leave, your income is significantly lower than usual, which might have an impact on your mortgage approval

Is it even possible to get a mortgage?

In Canada, you’re still able to apply and potentially qualify for a mortgage even if you are on maternity leave. It’s important to note that whether you’re pregnant or on maternity leave, you can’t be discriminated against or prevented from qualifying for a mortgage. 

However, just like any other applicant, there are a few different steps you’ll have to go through to pass the stress test and prove that you’ll be able to make your regular payments. You also need to have a credit score over 640, and if it’s less than that, you might want to consider having someone co-sign for your mortgage loan. 

What obstacles should I expect?

The primary obstacle you'll face is the diminished earnings during this period. While you might have set aside savings to help you through until you resume work, financial institutions are primarily interested in your current earnings. This is crucial for them in calculating your loan-to-income ratio and overall credit reliability.

Let's say, previously, you were eligible to borrow $300,000 towards a property. Now, with a reduced income, the amount a bank is willing to lend might decrease significantly. The disparity in income could lead to limited loan amounts or even complete disapproval. While there's no obligation to mention your maternity status, encountering biases from lending institutions isn't unheard of. Hence, it's advisable to explore multiple lenders to ensure unbiased evaluations.(Note: The data provided is randomly selected and is solely for illustrative purposes)

Moreover, the terms and conditions of your mortgage might be less favorable during maternity leave than otherwise. A potential solution is to revisit and refinance the mortgage once you're back at work, especially if a move becomes necessary during your leave.

Can your regular income be used for your application?

Determining what income is used for your mortgage application depends on your return to work date. Regardless of when you plan to return to work, as long as you have a date of return letter, 100% of your salary can be used to help you qualify for a mortgage. It’s important to note, though, that this doesn’t include any bonuses or overtime. 

For those who earn from self-employment, commission, bonuses, overtime, or any other type of non-guaranteed income, maternity leave typically doesn't influence your mortgage approval process.

The usual criteria for non-guaranteed income remain in effect. Those receiving bonuses, commissions, or overtime should furnish their T4s from the past two years. For self-employed applicants, the last two years of T1 Generals (tax returns) and Notice of Assessments (NOAs) are required.

Potential challenges arise if the maternity leave period has concluded and resulted in a diminished average income over the preceding two years. In such instances, some lenders might consider evaluating income from the past three years. If the calculated usable income doesn't meet the requirement, certain lenders might be open to considering earnings from the recent six months. However, typically only B-tier lenders entertain this approach, often leading to higher interest rates and associated lender fees.

Most importantly, you’ll also need a letter of employment from your current employer. This is a crucial step in being able to be approved for a mortgage and it must include your pay rate, the number of guaranteed hours, and your expected return to work date. 

Why is this letter so important?

When on maternity leave in Canada, you receive Employment Insurance benefits as your income. These benefits are a lesser amount than the usual full rate of pay you would receive if you weren’t on leave (EI benefits are up to 55% of your insurable earnings, up to a maximum of $638/week). And applying with this income would qualify you for a significantly smaller mortgage. Because you’ll want lenders to consider your application at your full, regular income instead, getting a “return to work” letter is the gateway to being able to do so. 

Your return to work letter must include the following important information: 

  • Employer’s name
  • Your original start date
  • Your salary
  • Your job title
  • Your return to work date

If you’re able to get this letter printed on company letterhead, it could provide extra assurance and legitimacy to lenders. Lastly, you’ll have to provide your history of previous income, which usually is through T4’s or Notice of Assessments. This is typical of any mortgage qualification process whether you’re on maternity leave or not. 

Ultimately, having this letter acts as a guarantee that you will be returning to work and helps lenders to consider you at your full income amount rather than your maternity leave pay. It also gives them the extra confidence to know that you will be able to continue to make your regular mortgage payments once you’ve been approved. 

Do you need to tell your mortgage lender you’re pregnant? 

Technically, your mortgage lenders can’t ask whether you’re pregnant or on maternity leave. But, because your lender will need access to your finances for the mortgage approval, they might ask if there will be any potential changes to your current or future income. 

Being on maternity leave doesn’t have to stop you

Getting approved for a mortgage while on maternity leave doesn’t have to be a challenge. Ensuring you meet all the requirements for approval in addition to your return to work letter are key steps to making it a smooth process. If you’ve already started your housing search or have any questions about a mortgage, one of Pine’s mortgage advisors would be happy to speak with you

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