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First Time Homebuyer Series: Qualifying Income

Gone are the days where you can just give 2 paystubs and qualify for a mortgage. Banks and lenders have become more strict with their guidelines and documentation requirements to support what is claimed in mortgage applications.

With all of the changes going on in the mortgage world, it’s important to know what lenders are looking for when it comes to qualifying income.

So what type of income qualifies with lenders?

1. Standard Income

This is where you have a permanent position that is salaried or hourly with guaranteed hours, either full-time or part-time.

If you get bonuses or overtime pay then you will need a 2 year tax history to support the income that is greater than your base pay.

2. Casual/Seasonal Income

If you have a casual or seasonal position, we will need a 2 year tax history to calculate the average income amount and use that to qualify. If you have less than 2 years, unfortunately the lender won’t consider your income to qualify for a mortgage.

3. Self-Employed

When you are self-employed, we will use a 2 year tax history to calculate your average income, based on your net business income. In some cases we will be able to gross up your income, as you’ve likely written off quite a bit as part of your business expenses, or we would be able to do a “stated” income, depending on the industry you are in.

4. Child Support, Alimony, Pension, and other

Lenders may use child support, alimony, pension, or other incomes as long as you can show documentation to support it.

5. Non-Taxable Income

Some lenders may consider non-taxable income as long as you have a 2 year history and documentation to support it.

What type of documentation will you need to show to prove your income?

These are the documents that the lender may ask of you (not an exhausted list):

  • Letter of Employment
  • Most Recent Paystub
  • Last 2 years CRA Notices of Assessment (also showing income taxes are paid in full)
  • Last 2 years T4s
  • Last 2 years T1 Generals
  • Last 2 years T2125 Statement of Business Activities
  • Separation Agreement
  • Proof of support/pension deposits
  • Letter showing proof of pension

What you are required to show will depend on the type of income you have. To be sure, talk to your trusted Mortgage Broker.

If you have any questions regarding how your income may qualify for a mortgage, contact Rose Blankenagel today.

- Real Mortgage Advice