There are three major components to a mortgage application; income, debt, and credit.
The first component, income, is your ability to make your monthly mortgage payments. Mortgage lenders are loaning you a considerable amount of money and they want to make sure you can afford it.
Which types of qualifying income you can use for your mortgage application will depend on the lender. These are the most common types of qualifying income we can use on your mortgage application.
Most Common Qualifying Income Types
Employment Income
This includes your regular salary or wages from your job. Lenders typically look at your employment history and income stability.
Lenders may directly contact your employer to verify your employment and income. Ensure that the information provided in your application matches your employer's records.
Self-Employment Income
If you're self-employed or a business owner, you can use your business income as part of your mortgage application. Lenders often require at least two years of tax returns or financial statements to verify your income.
Lenders often look at your net income after deductions rather than gross income.
Rental Income
If you have rental properties, the income generated from these properties can be included in your mortgage application. Lenders may require documentation such as lease agreements and tax returns.
Investment Income
Income from investments, such as dividends, interest, and capital gains, can be considered. You may need to provide documentation, such as investment statements and tax returns.
Retirement Income
If you're retired, you can include income from sources like pensions (e.g. Canada Pension Plan, Old Age Security) and retirement accounts (e.g. LIRA or RRSP).
Lenders may require proof of retirement income.
Alimony and Child Support
If you receive alimony or child support payments, this income can be factored into your mortgage application. These payments can contribute up to one third of your total income. You'll need to provide court documents or a legal separation agreement.
Note: If you are paying alimony or child support, this will be included in your debt obligations on your application.
Canada Child Benefits can also be considered, although it is dependent on the mortgage lender.
Non-Taxable Income
Certain types of non-taxable income, such as veterans' benefits or disability benefits, may also be considered by lenders.
Verifying Your Income
We need to present a clear and accurate financial picture to lenders of your income.
This is all part of the process. We need to make sure there are no fraudulent or illegal funds being used in your home purchase.
While some income sources are straightforward, others may require a bit more documentation or explanation.
Understand Seasonal or Irregular Income
If your income fluctuates seasonally or is irregular, it's important to explain this to your lender. Providing historical income records can help demonstrate your ability to make mortgage payments even during lower-income periods.
Clarify Employment Gaps
If you have gaps in your employment history, we’ll need to explain them. Lenders will want to understand why you weren't working and how it might affect your ability to repay your mortgage.
Bonuses and Overtime
If you receive bonuses or overtime pay, provide a history of these payments. Lenders may want to see a consistent pattern to include them as part of your qualifying income.
Gifted Income
If you receive money from family members or others, be prepared to provide a gift letter. This letter explains the source of the funds. It will also confirm that it's a gift, not a loan that needs to be repaid.
Business Ownership
If you own a significant portion of a business, lenders may consider the business's financials. This is especially true if it's closely tied to your personal income. Be prepared to provide business financial statements or tax returns if necessary.
The Takeaway
Working with a mortgage broker is going to help you present a transparent and accurate picture to lenders—whatever type of income you have.
If you need help with this part of the process, book an appointment so we can Craft a custom home plan for your unique income situation.
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