A Guide to Buying a Home on Maternity Leave

Everything expecting parents need to know about qualifying for a mortgage while on leave.

By Emily Southey | 8 minute read

Having a baby is an exciting time, but it may come with a unique set of challenges. For example, some parents-to-be may want to purchase a new home in preparation for the baby’s arrival, which begs the question, “Can I qualify for a mortgage on maternity leave?” Since mortgage loans are partially dependent on your job status, many expecting parents wonder if they will be able to obtain a mortgage while on temporary leave from work. Good news! The short answer is yes, you can get a mortgage on parental leave, but the long answer is a little more complicated, which we delve into below. 

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Obtaining a Mortgage While on Maternity Leave

There are two main reasons expecting parents may be concerned about their ability to obtain a mortgage while on parental leave. First, mortgage loans are a necessary step in the homebuying process for the majority of Canadians. Without a mortgage, few people would be able to purchase homes in Canada. Therefore, expecting parents want to ensure that their temporary leave from work won’t preclude them from reaping the benefits of a mortgage loan (namely, buying a property). Second, the amount a mortgage lender will approve you for directly relates to your income. This can be concerning for women on maternity leave whose salaries are temporarily reduced, as they worry that the loan they qualify for will be based on this reduced salary rather than their prior income. Keep reading to put your mind at ease, as we dive deeper into the facts about obtaining a mortgage while on maternity leave. 

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Mortgage rules for maternity leave

To qualify for a mortgage, whether you are on maternity leave or not, the rules are the same. For home sales with a down payment of less than 20%, mortgage lenders generally prefer you have a credit score of 640 or greater. Anything less than a 640 score will likely require a co-signer, such as a parent, sibling, grandparent, or partner. Further, to obtain a loan your down payment cannot be less than 5%. A letter of employment will be required that includes your salary. If you are on maternity leave, the letter of employment must also state your return date. If your return date is within 12 months of going on maternity leave, 100% of your employment income can be used for the mortgage loan. However, if your return date is greater than 12 months from the start of your leave, only 60% of your income will be used to calculate your mortgage loan. Overall, mortgage lenders will calculate how much you qualify for based on your employment income, housing expenses, and debt payments. More specifically, they will calculate your income-to-house-expense ratio known as your Gross Debt Service ratio (GDS). Meanwhile, your income-to-overall-debt ratio is known as your Total Debt Service ratio (TDS). To qualify for a mortgage, your GDS cannot be above 39% of your gross income, while your TDS cannot be greater than 44% of your gross income.

Meet with a mortgage broker or mortgage lender

The first step in obtaining a mortgage while on maternity leave is meeting with a mortgage broker or lender. While most mortgage lenders have the same rules for everybody when it comes to qualifying for a mortgage, regardless of your pregnancy status, some lenders might be a bit more lenient on your return date to work. As mentioned, you will need to state your intended return date in the letter of employment you submit to your mortgage lender. Some lenders may require that you be within 60 or 90 days of your return date and add legal stipulations to your mortgage qualifications to mitigate their risk. However, other mortgage lenders will be satisfied simply with a confirmation of your return date. For this reason, we recommend meeting with multiple mortgage lenders and asking about their rules surrounding return dates for those on maternity leave. Alternatively, you can also work with a mortgage broker who can obtain this information on your behalf and help you compare the difference between lenders so you can make an informed decision. 

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Please note that it is illegal for a mortgage lender to ask whether you are pregnant or on maternity leave in Canada. Further, a lender cannot legally deny you a mortgage because you are expecting. Even if they can tell you are pregnant from your appearance (in the case of an in-person meeting), they are required to take your word that you’ll remain employed the same way they would anyone else who contacts them for a loan. 

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Getting pre-approved for a mortgage loan

Once you’ve settled on a mortgage broker or lender, it’s time to get pre-approved for a mortgage loan. Getting pre-approved for a mortgage is a vital step in the homebuying process and one that should be taken early. In fact, some REALTORS® will refuse to work with clients until they have gotten pre-approved for a mortgage. 

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Mortgage pre-approval is when a lender confirms that you qualify for a mortgage loan based on the documentation you have provided (more on that below). Mortgage pre-approvals specify a term, interest rate, and principal amount. The principal amount can be used to help homebuyers determine their budgets, narrowing down their search. 

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There are many benefits to getting pre-approved for a mortgage, whether you are on maternity leave or not. First, a mortgage pre-approval makes you a more attractive buyer, increasing the odds that a seller will accept your offer. Second, it provides a clearer picture of what you as a homebuyer can afford. This will ensure you don’t make an offer on a home that is out of your budget. Ultimately, mortgage pre-approvals make shopping for a home in Canada a much smoother process. 

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It’s important to note that a pre-approved mortgage is the maximum amount a lender may loan you for a mortgage. It does not guarantee that you’ll get a mortgage for that amount when the time comes. If you decide to make an offer on a home and that offer is approved, that is when you will submit a formal mortgage application to the lender. The amount that is formally approved by the lender will depend on several factors, including the purchase price of your home and how much you are going to make as a down payment. 

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To receive a mortgage pre-approval, you must provide key documentation first. This documentation includes everything from identification and proof of assets to information about any outstanding debts or other financial obligations. The documentation is the same regardless of whether you are on maternity leave or not. However, there is one piece of documentation that differs if you are on maternity leave, and that is the letter of employment.