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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.
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.
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.
If you’re self-employed, you’ll have to use two years of T4’s or Notice of Assessments to qualify for the percentages listed above.
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.
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:
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.
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.
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.