Calculating Income. Part One
Being prepared to apply for a mortgage to purchase or refinance property can save you time and may make things easier when the time comes to verify your income. In part one of this two-part series, we’ll look at what lenders need when calculating your income for a mortgage approval.
full-time employee
- Letter of Employment: One of the key aspects for financing approval is employment stability. Lenders need a letter from your employer (on company letterhead) detailing your title, your start date, your hourly wage and guaranteed hours per week if hourly, or your annual salary, bonus income details, and any other items relating to your compensation. The letter can be written by your direct manager or the company HR department. The lender will call the author to verify the contents of the letter by phone.
- Previous Two Pay Stubs: In addition to the employment letter, the lender will also need your previous two pay stubs. These must indicate the company name, your name, tax deductions, current period income and year-to-date income as well. Should your year-to-date income not match the figures stated on your employment letter, the lender will need the background on the discrepancy.
- Your Previous Two or Three Years’ T4s:Having these on hand is strongly advised, especially if your year-to-date income does not match your employment letter. Lenders may take a 2-year average of your income to verify your earning potential. If the last of the two years is lower than the prior year, only the last year’s income level will be used in the calculation in most cases.
- Notices of Assessment (NOA) from Canada Revenue Agency:You may also need to provide the previous two or three years’ NOAs as a self-employed mortgage applicant. CRA sends this as your verification taxes have been filed. They show whether you have a balance owing, and if so, you’ll need to verify outstanding balances have been paid.
part-time employee
For part-time employees, the above documents are required, as well as possibly up to three years’ worth of NOAs. In most cases, lenders require part-time employees to have been working in the same role for at least two years for their income to be used to qualify. However, a lack of time with the same employer can sometimes be addressed if you’ve been in a similar or complementary role at another company within the timeframe.
Not all mortgage applicants look the same. Lenders may ask for more or less than what we’ve covered here. If you don’t meet some of the criteria we’ve covered, there are often exceptions to the rule. Connect with your trusted Mortgage Consultant to review your options in any case. In the meantime, look out for part two of calculating income in next Wednesday’s post.
https://dominionlending.ca/mortgage-tips/process-in-the-paperwork