As if expecting parents didn’t have enough things to worry about, here comes another thing to fret over: their dimming prospects of buying a home for their growing families.
A New York Times article published Tuesday reported that a pregnancy has become a potential deal-breaker when it comes to securing a home mortgage, even though mortgage rates are the lowest they’ve been in 50 years and home prices are falling.
The problem? The loss of income while a mother is on maternity leave, or the chance she will not re-enter the work force at all, causes lenders to wring their hands over greenlighting a mortgage.
On Wednesday, TODAY financial editor Jean Chatzky confirmed to anchor Matt Lauer that negotiating a mortgage can be a bumpy road for couples anticipating the stork. “What the lenders are saying is, ‘We need to see income, and we need to see income not just now, but that will actually last for the next three years,’ ” Chatzky explained. “If you qualified based on your income or your spouse’s income, you had your baby, you’re on maternity leave, and now you go to close, the bank can say to you, ‘Well, you don’t have that any longer.’ ”
While lenders are barred from asking borrowers whether there is a pregnancy in the family, it usually comes out when families have to report projected income. Federal institutions Fannie Mae and Freddie Mac buy loan packages from lenders, but each is liable to require the local lender to buy back the mortgage if it is discovered the loan didn’t meet underwriting requirements.
What’s an expectant mother to do?So, are new moms and pops looking for a new home for baby out of luck? Chatzky told Lauer there are ways around the problem. One strategy: “[If] you can still afford it, then qualify for that loan based on the single income to begin with, to just eliminate the problem,” she said. “But if you know you’re going to be going back to work, and you are going to be needing and receiving both of those incomes, get a note from your doctor that [says], ‘This is when it’s OK to go back to work.’ Get a note from your employer that [says], ‘This is what your salary will be when you go back to work.’ ”
Of course, expecting parents aren’t the only ones facing heightened scrutiny as lenders pull back from the freewheeling lending of the mid-2000s. Even though interest rates are down along with home prices, lenders are more stringent than ever during the qualifying process.
“We’re out of that era of liar loans, when people didn’t even have to document their income in order to get a very, very large mortgage,” Chatzky told Lauer.
According to FICO Inc., the company that produces the majority of credit scores for lenders, some 25.5 percent of Americans have a credit score below 599, making it unlikely they could qualify for a car loan, much less a home loan. This marks an increase of some 2.4 million people in just the past two years.
Chatzky’s advice: The best way to keep your credit score up and maximize your chances of getting a mortgage is to avoid credit card debt. “Pay your bills on time, and don’t use any more than 10 to 30 percent of the available credit you have on those credit cards,” she said. “That should take your credit score up.”
And an additional word of caution to prospective moms and dads: Know what you’re getting into.
“Make sure you can actually afford it once you go back to work, because the worst case, you buy a house, you can’t afford it — and then we’ve seen what happens to people,” Chatzky said.