How different types of income affect how you get a mortgage

How different types of income affect how you get a mortgage

In this article, we are going to discuss the different types of income, as well as how they affect your qualifications for a mortgage.

Salary / hourly with guaranteed hours

Using a salaried income is by far the easiest and quickest way to establish your income for a mortgage. Typically you can use 100 per cent of your salaried income before taxes have been deducted. For hourly employment, we calculate income by taking your guarantee hours for the work week. We multiply this number by the hourly rate and then annualize. You may also include overtime income and bonuses as long as they show a two-year track record of existence. Other perks may also pertain, such as a car allowance as long as it’s not a requirement of the job. This additional income above and beyond your base salary or guaranteed hours is verified by taking a two year average of your two most recent tax returns. We will use this average to determine what your annual income is for mortgage qualifying purposes.

Hourly with non-guaranteed hours

Hourly compensation with non-guaranteed hours can qualify for a mortgage. This falls into the category of irregular or fluctuating income. In order to use this income, we will use a two year average of your two most recent tax returns. This is to calculate what your income is for qualifying purposes.

Hourly + commission

This typically applies to salespeople and servers, whose pay is on an hourly basis plus some sort of commission or gratuities. This also applies to individuals receiving income based on a 100 per cent commission basis. To determine qualifying income, we require two years of previous tax returns and the qualifying annual income will be the average of these previous two tax returns. Also, if the commissions or gratuities are not on the tax return we will not use those for the calculation.

Seasonal employment

If you have seasonal employment you may be able to use your income along with your employment insurance payments as your qualifying income. In order to prove your income, the last two years of tax returns will be required for the seasonal employment and EI payments. EI payments will need to show a cyclical cycle that shows that they will continue in the future.

Self-employed

For self-employed individuals, you will need two years of tax returns to prove your qualifying income. We determine this by averaging your net income on line 150 from the two most recent tax periods. There are exceptions to this rule as a stated income program we can use to state what is made instead of what is shown on the tax returns. In order to qualify for this product, you must be self-employed for at least two years, have strong credit and may need to have a larger down payment.

Retirement income

Retirement income can put towards mortgage qualifying purposes. A broker can use items such as CPP, OAS, long-term disability, and company pensions as well. In some cases, depending on the lender, they can gross up this income a certain percentage if it is taxable income.

Additional sources of income

There are a wide array of additional income sources that may or may not count as income in a mortgage application. A couple common ones are the Nova Scotia Child Benefit, spousal support payments & payments from a registered retirement investment fund. Some lenders will accept this income, some will not and some have policies as to how much they can use for total household income. These types of income we deal with on a case by case basis.

When you speak with a mortgage professional ensure that you account for all your different types of income, they will be able to guide you and understand what types of income they can use in order for you to qualify for a mortgage.

Furthermore, if you need expert advice when it comes to mortgages or different types of income. I would be more than happy to help, contact the office or give me a call. I’ll get back to you right away and help any way I can.

Alex Lavender
Centum Home Lenders
alex@teamclinton.ca
902-482-2770