There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:
- Annual salary income employees
- Full time employees working guaranteed weekly hours
- Part time employees working guaranteed weekly hours
- Auxiliary/On-call employees with 2-yr history at same employer
- Commission Sales who have 2-yr history in same job/industry
- Employees earning gratuities who have claimed over 2-yr history
- Contract employees with 2-yr history at job/industry
There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.
When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.
For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.
The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.
Written by Ryan Oake