There are several different ways a borrow 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 working as an employee
Contract employees with 2-yr history at job/industry working as an employee
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, a 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 who has a salary, has their income verified and qualified on a mortgage application.
For numbers 4 to 6, 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 you have claimed from your current employer on your T1 General Tax Returns for the past 2 years is 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 similar to the one mentioned above. T4s from your employer can also be used if they pay taxes on your behalf. If T4As are being issued, we need to look at a 2-year average of the net business income you have claimed on your T1 Generals as a business for self earner and confirm everything with Notices of Assessment from the CRA. Keep in mind, if the income earned in the most recent year (year 2) is a lesser amount compared to the year previously (year 1), we must take the income in year as it is a lesser amount (no average).
The same process would be used for those who earn over time or bonuses, or work part time with two jobs. If you have any questions on how your income might be taken into consideration when applying for a mortgage, please reach out to a member of our team at email@example.com!