On the heels of the foreclosure crisis, as banks are entering into multi-million dollar settlements with the Securities and Exchange Commission, lenders have become much more conservative in approving home loans. According to a recent NY Times article "Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage," said John Councilman, president of AMC Mortgage in Fallston, Md. "There are some who long for the days when such strict proof of income was not required."

Fannie Mae and Freddie Mac have not changed their standards for qualifying for a loan, rather the process for verfying applicants' information has become more stringent. Now, banks recheck borrowers' finances immediately prior to the loan closing. Borrowers must prove that their qualifying income will likely continue for at least three years. Disability payments are consdered short-term payments so they cannot be used for this calculation. Women on maternity leave receiving disability cannot use this income to qualify for a loan, and because they are not currently receiving their salary they cannot use that income to qualify.

According to the NY Times article, a Washington based oncologist was nearly disqualified for a mortgage because of her maternity leave. Her lender actually emailed her to approve the loan and got an auto-reply saying she was out on maternity leave. The lender promptly replied denying her loan approval because disability payments would not be considered qualifying income. Once the oncologist was able to prove, via a letter from her employer, that she was actually receiving her full salary while on leave she was able to re-qualify for the loan. 

According to the article, "Janis Smith, a spokeswoman for Fannie Mae, said there was nothing in its guidelines that would prohibit a borrower on maternity or paternity leave from qualifying for a mortgage, as long as the borrower had proof at the time of the closing that his or her income would be adequate upon returning to work. Letters from a doctor (with a return date) and the employer (stating the return date and salary) should be enough, she added."

It is important for borrowers to understand the full scope of the mortgage approval process, so that their plans are not derailed by last minute issues.