As a pregnant mother, you may be in the nesting stage meaning you are eager to purchase and settle down in a family home. Getting a mortgage while on maternity leave,however, can be challenging at best! This is because it impacts your income and employment status which dissuades many high-street lenders from approving your mortgage.
But – fear not as today we will discuss the steps you can take to improve your chances of securing a mortgage. We will discuss what a mortgage is, how to prepare for the mortgage application process and how to budget for mortgage payments on a limited income. We hope this article will answer the crucial question – can you get a mortgage on maternity leave?
What Is A Mortgage?
To fully understand the process of getting a mortgage while on maternity leave, it’s absolutely critical that you’re clear about what a mortgage is, how it works and the types available. A mortgage is a loan which makes home ownership possible. If you don’t have the liquid cash available to buy your dream home outright, you can use a mortgage to finance this purchase. When you sign your mortgage contract, you agree to repay the lender over a number of years, usually 25. If you don’t make your loan payments on time, the lender may foreclose on your home, and take possession of it!
There are typically two types of mortgages on the market:
- Fixed Mortgages: A fixed mortgage does what it says on the tin. You pay a fixed rate each month back to the lender. The advantage of choosing a fixed mortgage is that, even with drastic fluctuations in interest rates, your monthly payments won’t change. This is why people with fixed-rate mortgages are laughing at the moment!
- Variable Mortgages: In contrast, a variable mortgage will fluctuate up and down with inflation. At times of high inflation and interest, such as now, variable mortgages will be more expensive.
There are also two different types of repayment plans available:
- Capital Repayment: If you choose a capital repayment mortgage, your monthly repayments are structured to ensure that you’ll pay off the entire balance of the loan plus interest within the specific time frame. This means that your monthly payments pay the interest of your mortgage, whilst also paying off the mortgage itself. Therefore, your mortgage’s balance at the end of its term will be zero.
- Interest-only Mortgage: In contrast, if you pick an interest-only mortgage, your monthly payments will only pay off the interest on your loan. This means it has no material effect on the amount you actually owe. At the conclusion of the mortgage term, you will be required to find the lump sum payment for the initial amount you borrowed. For this reason, capital repayment is much better as when you finish your mortgage term you will be debt free. You also won’t have to stump up hundreds of thousands of pounds which you may not have!
Can You Get a Mortgage on Maternity Leave?
Now let’s answer the key question – can you get a mortgage on maternity leave? In essence, it is possible to get a mortgage on maternity leave but you may have to jump through a few more hoops than usual. This is because when considering a loan application, mortgage lenders assess your income, and maternity leave is frequently viewed as posing a risk to your income stability. This is because you have little to no income on maternity leave, making it more difficult to meet the lender’s income requirements. A good option is to try to push for some paid maternity leave, as this means you will still have some constant cash flow.
Due to being on maternity leave, you may find it challenging to provide documentation to prove your employment status, or if you have a high-risk birth or pregnancy – you may not be able to return to work as soon as you intended to. These elements can further complicate the mortgage application process. However, remember that getting a mortgage is not impossible – you just need to be prepared!
Preparing For Your Mortgage Application
Preparing for the mortgage application process is crucial, especially if you’re on maternity leave. Being prepared with all the necessary paperwork will speed up the process and improve your chances of getting your mortgage approved. Let’s jump into our top tips for preparing for your mortgage application on maternity leave:
- The first, and most crucial step is to work out your budget. You should consider how having a child and going on maternity leave may affect your finances. If you attempt to get a mortgage based on your full-time salary, you should ensure that you’ll be able to stump up those payments on your maternity pay. You should also look to the future and determine how much you’ll have to spend on childcare when you return to work. Your lender will want proof that you have considered all of these eventualities!
- Your lender will need a number of documents – such as bank statements, tax records, and proof of income, to review your mortgage application. So, it’s a good idea to gather these documents ahead of submitting your application.
- We suggest using a mortgage broker to help you find a lender that suits your needs.
- Once you have chosen a lender, ask them about their mortgage options, interest rates and costs. It’s crucial that you ask them about any other requirements for mothers-to-be. Make sure you understand all of the fees related to the mortgage, loan terms and application procedure.
If you follow our advice, you should get your maternity leave mortgage approved in no time!
Choosing the Right Home For You on Maternity Leave
Once your mortgage has been approved, you should have a good idea of your budget for purchasing your family home. Now for the exciting bit – house hunting! Let’s jump into the key factors to consider when choosing your dream family home.
Your Dream Home
To build up a mental image of your dream home, you should ask yourself the following questions:
- Do I want a new build, or a doer-upper? Bare in mind, if you purchase a house which needs a lot of work this will put further, undue stress on your pregnancy!
- How many bedrooms do I require?
- Is having a big garden important?
- Does location matter?
Knowing the answers to these crucial questions will give you a better understanding of what you’re looking for and enable you to focus your search when speaking with estate agents.
Once you have this mental picture, you next need to choose a location. When you have a family you need to consider more than just where the local pubs and shops are! You need to think about the local schools, OFSTED reports, nurseries and childcare available to you in the area. Do your parents live nearby? Great – free childcare is a huge plus for any young family!
Another thing to consider is if you want to live in the city or the countryside. No matter where you choose, we advise looking for a home that is close to a park. This means, when your baby has grown up, they will be able to play and run around freely. It’s even better if you’re close to walking paths and forests. This will enable you to spend time outside as a family on a regular basis. The safety of the neighbourhood is the final thing you should consider. Try to find an area with other young families. This usually means the area is safe for mums to go out alone or at night!
The thought of another pregnancy might seem ludicrous to you now, but in a few years, there is a high likelihood that your family will expand and grow! It’s always a good idea to take into account whether the property has the ability to be expanded in the future, providing you with additional space. This will save you the money (and hassle) of relocating to a larger house in the future.
Budgeting for Mortgage Payments on Maternity Leave
Now that you’ve (hopefully) got your mortgage approved, and chosen your dream home – you need to consider how you are going to pay those monthly mortgage payments. The key to being able to afford your mortgage payments and retain financial stability is to budget while you are on maternity leave. Here are our top tips for budgeting whilst on maternity leave.
Review Your Expenses
Our first tip is to sit down and review your monthly expenses. Try to establish what you are spending and where. This could help you to identify where you can cut back. For instance, if you get 10 takeaways per month, all for £30, this is £300 over the month. You could save this money and put it towards your mortgage.
Be Clear About Your Maternity Pay
Our next tip is to be crystal clear about what you’re going to be earning over your maternity period. This can be difficult because different countries and companies have different rules. Whilst the UK’s maternity leave laws aren’t great, we have still detailed them for you below:
- For the first six weeks of your maternity leave, you will be paid 90% of your weekly wage. As a result, if your weekly income is £1000, you will now make £900.
- For the following 33 weeks, you will receive whichever is lower – £172.48 a week, or 90% of your weekly average earnings.
- If you decide to take the full 52 weeks of maternity leave that is offered, the final 13 weeks will be unpaid.
The issue with the current state of the maternity pay laws in the UK is that they discriminate against single-parent households. It is nearly impossible for a mother to pay her rent, bills, food and baby formula on a mere £172.48 per week. Moreover, the drop off of maternity pay after six weeks may encourage some mothers to return to work before they are ready! But – it could be worse, you could live in America where mothers are provided with zero paid maternity leave unless it comes as an added employer benefit.
Be Clear About Your Mortgage Payments
You need to be clear about the monthly payments you are expected to repay for your mortgage whilst on maternity leave. To do this you should use a mortgage calculator. By entering the amount you are borrowing, the term of your mortgage and the interest rate, a mortgage calculator can tell you your estimated mortgage payment. This figure will include interest, taxes and insurance.
Budget your Maternity Payments
Now you are clear on your monthly incomings and outgoings, you can create a budget. We advise that you purchase a budget planner to do this. Here are some of the bestsellers on Amazon:
- The Clever Fox Budget Planner is leather-bound, and comes in 15 different colours, making it ideal for those who are conscious of aesthetics. The planner is broken down by months, and each month has 8 pages. At the end of the planner, there are two pages for Christmas budgeting and two pages for a yearly summary to track your budget success. The Christmas budgeting is perfect if it is going to be your baby’s first Christmas. All this – for a price of just £15.99.
- If you’re on a tighter budget, the Boxclever Lightweight Budget Planner could be for you as it comes at a price of just £5.99! You can efficiently manage your finances with the help of the planner’s spending, savings and debt tracker. You can schedule your monthly income and expenses in the monthly budget planner area. This enables you to set a budget for different categories. These include entertainment, food (whether that be Aldi or Waitrose) and transportation such as your car or bus.
- For those of you looking for something simple but effective – check out this Getvow Budget Planner. You can set and review your monthly goals and budget with the help of this 12-month planner. This helps you to develop good monthly habits, financial strategies and action plans.
Have an Emergency Fund
As an expectant mother, YOU NEED AN EMERGENCY FUND! If you remember nothing else from this article, please remember this.
An emergency fund is a pool of savings which you can fall back on if you are struggling to cover your mortgage payments. It protects you from the debt and financial stress that comes with taking out further loans or credit cards. You want to avoid further debt at all costs whilst on maternity leave, or when you have a newborn. Additionally, having an emergency fund can save you from having to sell your home in times of difficulty.
You might be wondering – how much will I need in my emergency fund? As you are, or will be very soon, a person who has a family, a mortgage and other bills – you will require a larger emergency fund than a single person without children. The general advice is to have six months’ worth of your essential expenses covered within your emergency fund. If you’re not sure how much you need in your emergency fund, use an emergency fund calculator.
Saving for Your Emergency Fund
So, how do you go about creating and saving for your emergency fund?
- The first step is to establish how much you need. To do this, we advise that you use the emergency fund calculator linked above. Obviously, the bigger the better. However, you don’t want to stress yourself out by saving huge sums of money every month that you can’t afford!
- Now you’ve established how much you are going to save – you need to pick a target date. Let’s say you’d like to save £6,000 in the next year. To determine the amount you need to save each month you can divide the total figure by 12 months. This would mean a monthly saving of £500. On maternity leave, this might seem a little out of reach though – so something is always better than nothing!
- We also advise that you open a separate savings account for your emergency fund. This stops you from being tempted to withdraw money from it for things that may not be an emergency. These include new clothes or beauty treatments. Avoid using savings accounts that are locked as you will not be able to access the money quickly!
- Once you have reached your emergency fund goal, put a plan in place to keep it topped up over time.
To conclude, although it feels impossible, securing a mortgage while on maternity leave is doable it is crucial to be open and honest with your lender about your circumstances and to provide all the necessary paperwork. You should be patient throughout the application process. To avoid falling behind on your mortgage payments (and creating undue stress for yourself), create a clear budget using one of the budget planners we discussed. We hope that this guide will help you secure a mortgage while on maternity leave and purchase your dream family home! Also take a look at our Baby Budget List to give you an idea of other costs to consider https://thebabyedition.com/baby-budget-list-uk/.