Income is one of the most important components of a mortgage application as it determines how the borrower is going to repay their loan. One of the most common questions we get asked is what kind of income is eligible to be used in the qualifying calculations. Your mortgage lender will want to first confirm your income source in writing and whether it is expected to continue. Let’s explore the different kinds of income sources that can be used as well as the documentation requirements for the different types of income;
Typically classified as a borrower who is earning an income from a third party company and income taxes are deducted by their employer. There are many types of this source of income that can be used in qualifying such as overtime, bonuses and shift differential. You will likely be expected to provide the following documents to confirm your income amount for qualifying;
Employees on SALARY WITH GUARANTEED HOURS (not using overtime or bonuses)
Most often you will be asked to provide an income employment and employment letter as well as a recent paystub which shows year to date income.
Employees who earn income from PIECEWORK, BONUS or OVERTIME
In addition to the above required documentation, you will be asked to provide your most recent 2 years Notice of Assessments from Revenue Canada to establish there is a history of that additional income. The lender will also want the comfort of knowing you will continue to earn this additional income.
Employees on CONTRACT
If you are on a contract with an employer and they deduct income taxes on your behalf the document requirements are similar to an employee who earns overtime. The lender would require a copy of your contract as well as your most recent 2 years income tax returns to confirm your income history and amounts.
Lenders look at it this way; if they can’t look forward, they will look back. If you can’t show your income is guaranteed, your lender will request a history of earnings in addition to some proof you are expecting to continue earning an income sufficient to qualify for the mortgage.
This covers all the borrowers who are business for self or self-employed. These individuals own a business or are independent contractors who pay their own income taxes. Whether you are 1 day self-employed or 20 years in business, there are financing options available with the various lenders who understand income confirmation can be a bit trickier for the self-employed.
Self-Employed for 2+ years
You will be asked to provide proof of self-employment as well as a 2-year income history to prove your “taxable” earnings.
Self-Employed for less than 2 years or minimal income declared
Good news is we have access to “stated income” programs that allow a borrower to “state their income” at a level that is reasonable for the industry they work in. Again, you will be asked for proof of self-employment, however, confirmation of other traditional income documents may not be required.
Other Eligible Income
There are many other types of eligible income sources that can be used for qualifying and without going into too much detail, below are some examples:
Part-time income: 1-2 year history of earnings required along with confirmation of employment.
Pension income: 2 year history of earnings via cheque slips and/or bank account statement showing pension deposit.
Disability income: must be long term and confirmed with documentation.
Child Support or Alimony: can be used if the divorce or separation agreement confirms the amount.
Seasonal Employment: minimum 2 year history of earnings required along with T4s and/or Notice of Assessments and employer confirmation.
Rental income: lease agreements and/or tax returns confirming amount of those rentals from rental properties or legal suites.
There are many types of eligible income sources that can be used in qualifying that may not be mentioned above and the requirements vary between lenders and most importantly, exceptions apply! Be sure to talk to a trusted mortgage professional about the options available to you as we have access to lenders who have a “if you can prove it, we can use it” attitude. Do be aware these types of lenders may charge a higher rate or have a larger downpayment requirement.
Contact The MortgageGirls, your professionals with personality if you have any questions about your options at 780-433-8412 or email email@example.com. Stay in the loop by following us on Twitter @Mortgagegirlca