Some new parents are finding that they do not qualify for new loans because they are on a leave of absence from work. Parenthood often leads to large purchases and limited credit can make these difficult. New parents may find themselves denied for a mortgage or even a new credit card due to their temporary leave status with their employer.
According to TheBump.com, 45 percent of expecting moms want to change residences before the little one turns two. Chad Smith, senior VP of mortgage services with LendingTree, says his company advises customers not to open new accounts, change or quit jobs, or go out on leave when applying for a mortgage.
Applicants receiving a reduced rate of pay while on leave qualify based on that rate.
Those who are on unpaid leave are treated like the unemployed, making it difficult or impossible for them to qualify for a mortgage. Even before the mortgage crisis, being on leave would have made it difficult to qualify for many traditional loans.
Since that time, lending rules have further tightened.
Beginning in October, the Federal Reserve will require credit card issuers to consider individual, not household, income when they evaluate credit card applications. A stay-at-home parent could be unable to get a new credit card.
Financial restrictions like this place more pressure on new parents. Lenders are increasingly hesitant to provide unaffordable loans and enable the accumulation of large credit card debt.
To overcome these issues, parents can borrow from non-traditional sources, like using temporary seller financing for a home purchase. Secured credit cards and becoming an authorized user on the spouse’s card are credit card alternatives.
Paying off existing debt ahead of time may make new parents more attractive to a lender. Payday loans and cash advances may be suitable for small expenses that can quickly be repaid.
