How Being Pregnant May Impact Your Mortgage
Prospective homebuyers who experience a dip in income while applying for a loan -- including a parent who decides to take a leave of absence to take care of an infant child -- may be putting their mortgage at risk, reports The New York Times.
Like losing a job or a dropping commission salary, a salaried-worker taking time off to stay at home with a child may mean a temporary reduction in income for the borrower.
When on maternity leave, some mothers receive disability payments, but state laws and company policies determine the amount and length of this financial reimbursement.
"Basically, lenders are approving you for a specific loan based on a particular income you applied for," says Keith Stewart, a mortgage consultant with Northpoint Lending Group, Inc. "If there is any change in income up to the day of closing, the lender can deny you."
And in the new age of tightened lending, scrutinizing the financial situation of borrowers up until closing day is leading some lenders to find a mother who is on maternity leave or who has cut back her hours to stay at home with the kids.
The stricter lending guidelines -- driven in part by the quasi-governmental mortgage giants, Fannie Mae and Freddie Mac -- are requiring that the financial situation of borrowers is checked again on the day of closing. This includes a verbal verification of employment.
Since June 1, new Fannie rules mandate that lenders verify employment via telephone right before the loan closes. Before, an employer only had to confirm this in writing. Freddie's rule was implemented back in January.
Another complication for soon-to-be parents is Fannie and Freddie's longtime stipulation that borrowers not only have enough income to pay for the loan on closing day, but that they also can prove that the income will continue for three years. Disability payments only continue for a matter of months until the mother or father can come back to work.
But not to worry, one real estate expert says this scenario -- the coinciding of your loan closing and arrival of your baby -- can be averted.
Kelly Collins, a broker with Englewood Mortgage Company, suggests being upfront with your mortgage lender and disclosing how your income may change, such as maternity leave, so that they can help prepare financially through the loan process.
She adds that before being pre-qualified for a loan, find out from the underwriter if they are going to want something in writing from the employer in the event that you or your wife takes a leave of absence because of a baby. This letter should also have a salary and return date included.
"It's OK to go on maternity leave," she says. "Lenders just want to know you can make the payments."
Janis Smith, a spokeswoman for Fannie Mae, also told TheTimesthat as long as the borrower can prove his or her income at closing, there would be nothing that would preclude him or her from qualifying for a loan. In addition to the employer's letter, Smith advises having a letter from a doctor stating a return date to work.
But aside from creating havoc for a few mothers- and fathers-to-be, Stewart thinks that it's a positive, given the economy and sheer number of job losses, that the banks are doing their due diligence in approving loans.
"If I was the one loaning the money, I would be calling the day of to verify employment," he says.
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