Qualify for a Mortgage with Temporary Leave Income
What is Temporary Leave?
Temporary leave from your place of employment is usually short in duration and is most commonly due to maternity or parental leave, short-term medical disability, or other short term leave reasons that are acceptable by law, or your employer.
- Your income and employment history must meet standard qualifying requirements.
- You must be able to document your return date.
- Your employer must document that you have the right to return to work following the temporary leave.
- Your lender must be able to get a verbal verification from the lender that you are currently on temporary leave and able to return.
- Your lender must be able to verify both the duration and amount of your temporary leave income.
- Your lender must be able to verify and document your regular employment income prior to the temporary leave.
Calculating Qualifying Income
If you will return to work before the first mortgage payment is due on the new loan, your lender can use your regular income when calculating your debt to income ratio during the qualification process.
If you will not return to work as of the first mortgage payment due date, your lender is going to use the lesser of your temporary leave income, or regular employment income.
In cases where your temporary income is less than your regular employment income, your lender can supplement the temporary income with available liquid reserves from an acceptable source like a checking or savings account, or any other financial account that meets the definition of being “liquid”.
Using reserves as income is considered “supplemental income” under these specific circumstances and can be used for the purposes of qualifying for a new mortgage loan.
Calculating Supplemental Income
Your supplemental income can be calculated by taking the available liquid reserves divided by the number of months of supplemental income.
Available liquid reserves are calculated by subtracting any funds needed to complete the loan transaction (down payment, closing costs, any debt required to be paid off, amount needed for escrow account, and minimum reserves required by the underwriter.
The number of months of your supplemental income is the number of months from the first mortgage payment date to the date that you will begin receiving your regular employment income upon returning to work, rounded up to the next whole number.
When calculating your your total qualifying income (if not returning to work before first mortgage payment is due), your supplemental income can be added to the temporary leave income that you already receive.
Your total qualifying income when using both the temporary and supplemental income cannot exceed your regular employment income.
Example of Qualifying Income Calculation
NOTE: If you are going to return to work before the first payment is due on your new mortgage, you can use your regular pay, and supplemental income would not be necessary.
Here is an example of how you would calculate qualifying income using temporary leave income, and supplemental income.
- Regular income amount: $6,000 per month
- Temporary leave income: $2,000 per month
- Total verified liquid assets: $30,000 (minus)
- Funds need to close: $18,000 (equals)
- Available liquid reserves: $12,000
- First payment date: July 1
- Date you will begin receiving regular income: November 1
- Your supplemental income calculation: $12,000 (liquid reserves) divided by 4 (months until return to work) = $3,000 (per month).
- Your total qualifying income is $3,000 (supplemental income) + $2,000 (temporary income) = $5,000.
Finding a Lender that Can Help
NOTE: These qualifying requirements only apply if your lender becomes aware of your temporary leave because you disclosed it to them, or it was discovered while verifying income or employment. If you are not currently on temporary leave, the lender is not allowed to ask you if you plan to take temporary leave in the future.
If you have questions about this program, or would like an introduction to a lender that is offering these programs, please feel free to inquire, ask a question, or comment below and we’ll try to get you pointed in the right direction.