Can I still get a mortgage if I’m on parental leave?

Applying for a mortgage is stressful at the best of times.

But applying for a mortgage when you’re on—or about to go on—parental leave can make it even more complex.

Yes, you can get a mortgage approved while on parental leave.

But banks will take a tougher look at your application.

This can feel frustrating. Especially when it seems like the banks are just saying “no” or throwing up roadblocks.

But you’ve got to remember that the bank is trying to act responsibly. A child will impact your money life. So, the banks want to make sure you’re not taking out a loan that you can’t afford.

In this article, you’ll learn what you need to do to get your mortgage approved when you’re on parental leave. You’ll also get a few tips to help you get that approval you need.

Will having a child affect my mortgage application?

Yes, having a child – whether already born or on the way – will impact your mortgage application.

That’s because you might take time off work when they’re born. That means you might have less income.

But kids also cost money to feed, clothe and entertain. The bank knows this. So, they factor these extra costs into your mortgage application.

But, banks often don’t have a written parental leave policy. Often, there are no set guidelines for how they will assess someone’s application when they’re having a baby.

Instead, banks look at it on a case-by-case basis. They look at your situation.

This puts banks in a tricky spot.

On the one hand, they can’t discriminate against women who are pregnant or planning to have children.

On the other, they have to lend responsibly under the Credit Contracts and Consumer Finance Act (CCCFA). They need to look at how your financial position could change over the next 12 months.

Here are the key factors that banks will consider if you are pregnant or planning on having a baby:

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#1 – How long will parental leave be?

The biggest question the banks will have is: How long will your income go down while you’re on parental leave?

That includes:

• How long will the parent’s income drop?
• When will they start to earn their full income again?

If you plan to head back to work quickly, then it’s more likely that your application will be approved. That’s compared to if you are off work for a long time.

Keep in mind that it’s not just about how long you stop working for ... Banks know that many parents return to work gradually when it’s time to head back to the office.

Some parents even face unexpected delays in returning to work. (More on this below).

The length of time you’re off work often isn’t that important. It’s about what your game plan is for the time you’re away.

This brings us to our second factor.

#2 – Do you have money to bridge the income drop during maternity leave?

A bank might still give you a “yes” if you have enough cash while one parent is on leave.

This might mean:

• You have the savings available in an account.
• You have a revolving credit (or other financial resources) to see you through.

For example, the government parental leave payment is capped at around $755 per week. This is less than $40,000 per year.

Let’s say Matt and Anna are applying for a mortgage, and Anna plans to take three months of parental leave.

Let’s say Anna’s income is $250 less per week when she goes on maternity leave. The bank may want to see at least $3,000 in savings to cover the shortfall.

And often, they’ll want to see cover for longer than this. Especially if you plan to return to work gradually or need to account for daycare costs.

#3 – What will your income be when you return to work?

It’s rarely as simple as: “I’ll go back to work and earn my full salary 3 months after the baby is born”.

Parents often want a staggered return. So, you might start doing three days a week for a month. Then, you might build up from there.

Parents often return to work part-time. And they often adjust their plans if there are complications with the baby or their health.

But banks need to know when you’ll return to work full time and the income you will be earning.

You'll need a "return to work" letter from your boss to confirm both these points.

Now, banks have very different policies on return-to-work timelines.

Some banks will accept proof of your income if you plan to return within 3–6 months.
 

So, let's say Matt and Anne bank with BNZ. As long as they return to work within 12 months, the bank will consider the application. That’s if they can prove they can survive money-wise over that time.

#4 – How will a dependent child affect your monthly income?

Kids are expensive. Both banks and parents know it.

Dependents increase your expenses, which affects your mortgage serviceability.

For example, daycare costs are astronomical. Bear Park, an Auckland daycare provider, costs between $450-$650 a child for a full week.

Prices vary between centres and depend on the age of the child and how many days they attend.

So, the bank will want to know if there are daycare costs when you do head back to work.

What can I do if I’m a new parent and want a mortgage?

Are you planning to apply for a mortgage while on (or approaching) parental leave? Here’s how to make it more likely your application gets the green tick:

#1 – Be realistic with your numbers

Take a close look at your expenses. That means thinking about extra childcare costs when your new one comes into the world. And also be realistic about your household income dropping.

You want to make sure that any new mortgage is affordable.

#2 – Don't hide your pregnancy

Whether it’s a pending parental leave or a pregnancy ... disclose everything to your mortgage broker. I’ve seen scenarios where people tried to hide the pregnancy from the bank. That’s not a good idea.

If your income situation will change in the next 12 months – tell the bank.

However, if you think – “maybe we’ll have a baby in 3 years”, then it’s not necessary to mention that.

#3 – Share your game plan

Demonstrate how you’ll cover your expenses when your income goes down. Either through savings, a revolving credit facility, or other means.

If you can prove you’ve got the money to get through, you are more likely to get your mortgage approved.

#4 – Use a mortgage broker

An experienced mortgage advisor can navigate the nuances of different bank policies. And they’ll advocate on your behalf.