WHO IS AN INCOME-QUALIFIED BORROWER?
An income-qualified borrower is someone with sufficient employment income to service their mortgage. The most important question for the lender is, “how will they repay this mortgage?”
There are several ways a borrower can qualify for a mortgage. Today, let’s talk about income-qualified borrowers aka. employees.
TYPES OF INCOME ACCEPTED
- Salaried employees
- Full-time employees working guaranteed weekly hours
- Part-time employees working guaranteed hours
- Auxiliary/on-call employees with a 2-year history with the same employer
- Commission based sales with a 2-year history with the same employer
- Employees earning claimed gratuities with a 2-year history
- Contract employees with a 2-year work history at the same employer
Let break these income types into two categories; 1. Guaranteed Income and 2. Non-Guaranteed Income
GUARANTEED INCOME (1-3)
Guaranteed income means you are on a set salary or number of hours per week. Generally speaking, your gross income is known for the year. It’s determined by your salary or your hourly wage x the number of guaranteed hours your employer gives you.
HOW IS THIS INCOME CONFIRMED?
This income is confirmed by the lender via:
- An employment letter on a company letterhead stating salary or hourly wage and your guaranteed number of hours. It needs to state your job title and start date as well. The lender will call your employer to verbally confirm the details in the letter
- A recent pay stub dated within 30 days showing your year-to-date income
Bonus and overtime can be used to income-qualify for your mortgage. The lender will want to see a 2-year history of your Notice of Assessments (NOA) and use a 2-year average to determine allowable income.
For example, John Smith has an annual salary of $80,000 as per his employment letter. However, he received a $7,000 bonus in 2017 and an $8,500 bonus in 2018.
2017 NOA shows $87,000 and 2018 NOA shows $88,500 = 2-Year average income of $87,750
NON-GUARANTEED INCOME (4-7)
Income earned is not guaranteed and therefore, varies from year-to-year. In this case, you will need to have a full 2-year history working with the same employer for your income to be accepted.
The income will need to be reported to the Canada Revenue Agency. The lender will look at your line 150 on your T1 Personal Tax Returns over the past 2-years. This can also be confirmed via your Notice of Assessments. Just like our example above, they will use a 2-year history of income to determine your acceptable income on your mortgage application.
You will still need to produce an employment letter and a recent pay stub dated within 30 days.
If you have any questions about income-qualified borrowers or any mortgage related questions, please reach out to me anytime.