When it comes to income qualifying for a mortgage, the lenders and insurers have different requirements for various income sources.
The majority of applicants with employment income fall under the following 6 categories:
1. Salaried Employees
2.Full Time Employees, Paid Hourly with Guaranteed Hours
3. Part Time Employees, Paid Hourly with Guaranteed Hours
For these 3 income types, a borrower’s income is paid through a business in which they do not have any interest / ownership. A lender will typically request the following paperwork as income confirmation for mortgage approval in these cases:
- A letter of Employment stating the applicants position, date of hire and salary or hourly rate and guaranteed hours.
- A Recent Pay-stub
- Many lenders will also complete a verbal income confirmation, calling the employer / HR to verify the details and tenure details outlined on the letter of employment.
4. Shift Workers, Seasonal Workers or On-Call Employees with a 2 year history at same employer
5. Commission Sales Employees with a 2 year history in the same role/industry
6. Contract Employees with a 2 year history in the same role/industry
With income sources 4-6, income verification requirements are a little more complicated. As the employer cannot guarantee the employees annual income in writing, the lenders and insurers will require we supply a 2 year history on their employment income. The lender will look at an average of the borrowers last 2 years income if it is increasing year over year, or the lowest of the last two years if the income has decreased. This 2 year average can also be used for employees who claim tips, earn overtime or receive significant bonus income.
Income verification requirements for these income sources could be any or all of the following:
-The last 2 years of T4s from the employer(s) and / or Personal T1 General Tax Returns
– The last 2 years of Notice of Assessments from Revenue Canada as 3rd party verification of the income claimed
-A letter of Employment or Copy of their contract stating their position, date of hire, pay rate and tenure
-A recent paystub confirming the year to date income is consistent with past years / income used on the application
As always, every lender is slightly different in their paperwork requirements and every income source is reviewed on a case by case basis. If you have a questions regarding a specific income type, please do not hesitate to call or email me anytime.