What type of income proof do I have to provide?
In most situations lenders require a comfort level that the borrower has sufficient income and cash flow to service the mortgage as well as any other obligations that they may have. The higher the Loan to Value (i.e. mortgage amount vs. purchase price) the more important this becomes as the lender is placing less reliance on the value and equity in the property and more on the earning power of the borrower. The following is a summary of what Lenders require depending on what type of job you have:
Salaried Employees
- Job Letter - lenders use 100% of the income. Verification is made on company letterhead which must be signed by an appropriate individual. If you are a recent hire, the letter should confirm that any probation period has passed. Bonuses, car allowances and other forms of remuneration should be mentioned if applicable.
- Pay Stubs - many lenders will also require your most recent pay stubs.
Hourly Employees
- Pay Stubs - showing year-to-date income verification.
- T4's and/or Personal Tax Returns (T1 Generals) - 2 years to take an average.
- Notice of Assessment (NOA) – optional depending on the lender. If required then most recent to confirm no taxes owed.
Commission Income
- T4A's and/or Personal Tax Returns - 2 years to take an average.
- Job Letter - confirming position.
- Notice of Assessment (NOA) – optional depending on the lender. If required then most recent 2 years.
Self-Employed
- Financial Statements of Company - 2 years average of net income used. Depending on lender's policies, the add-back of various personal expenses run through the company may or may not be allowed. Examples of such add-backs include depreciation, amortization and capital cost allowance (CCA). Lenders may also require Articles Of Incorporation.
- Personal Notice of Assessments (NOA) - most recent 2 years.
- Personal Tax Returns (Full T1 Generals showing personal net income) - most recent 2 years.
Overtime - will be used as long as there is a proven track record - 2 years evidence (T-4's).
Bonuses - once again a 2 yr track record required.
Part-time Job - should be in place for 2 years before using the additional income.
Tips - generally not recognized unless declared for tax purposes.
Car Allowances - this varies from lender to lender.
Alimony and Support - evidence that payments have been made regularly and a copy of the separation agreement is required.
Investment Income - must be received continuously. This source of income is limited to interest, dividends or some type of ongoing revenue. Capital gains, which result from the liquidation of an asset is a one time occurrence and can't be used.
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