Managing Your Money

Out on child care leave? It might be hard to get a mortgage

Interest rates on mortgages are now at incredible lows (at or below 4.5 percent for 30 year fixed rate loans with no points and no closing costs) so new mortgage originations and refinancings are keeping mortgage brokers swamped with work.

That's the good news. The bad news is that mortgages are getting harder to obtain for just about everybody. Even applicants with stellar credit histories and a long tenure with their employers are facing scrutiny in the mortgage approval process.

One category of applicant that is having a particularly hard time getting a mortgage are parents who are home temporarily with babies. This would include mothers on maternity leave and fathers taking family leave time without pay.

A recent New York Times article told the story of a new mother who was home on maternity leave with her new baby. She was being paid for her maternity leave, but was technically receiving "disability" payments and her lender wouldn't consider this as income because it wasn't expected to continue for at least three years. They also wouldn't consider her "old" salary because there was no guarantee that she was going to return to work. She was instructed to re-apply for her loan once she returned to work.

If you are expecting to be out of the workforce to care for a baby, the smart thing to do is apply for and close on your mortgage while you are still receiving your "regular" income. That means that you should close on the new mortgage either before your leave or after. You don't want to find yourself in the position of losing a great mortgage rate because you happen to be out on a few weeks of unpaid leave.

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