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What homebuyers and homeowners should know about proof of income

What homebuyers and homeowners should know about proof of income

“How much do you make?” is an awkward question, but homebuyers and homeowners must be prepared to answer – and back up their number with evidence – if they want to apply for a mortgage, pre-approval, refinancing or renewal. 

Income verification is a key step in mortgage qualification. Lenders use a prospective borrower’s income and debt to calculate Gross Debt Service (GDS) and Total Debt Service (TDS) ratios, which determine how much of a mortgage they can afford.

Here’s the income-verification documentation applicants should have ready when applying for a mortgage, pre-approval or refinancing.

For full-time, salaried employees

If you work on-staff, you should collect this documentation:

  • Pay stubs or slips;
  • Canada Revenue Agency (CRA) Notice of Assessment;
  • Letter of employment confirming their position, annual salary and how long they’ve been with the company.

If they’ve recently started a new job, the letter of employment should also state whether or not their probationary period is over. Commissions and bonuses can be supported via the Notices of Assessment.

For part-time, seasonal or contract workers

Here’s the income-verification lenders will expect if you don’t work full-time:

  • Pay stubs or slips
  • Canada Revenue Agency (CRA) Notice of Assessment
  • Letter of employment confirming applicant’s position, average weekly hours, pay rate, year-to-date earnings and status (i.e. permanent or temporary)
  • For contract workers, a copy of the contract and any renewals

Income should be consistent and can be proven with a two-year average of tax assessments or T4s.

For the self-employed

If you’re self-employed, a freelancer, a small business owner, or gig-economy worker, here’s what you will need to produce:

  • Two years of CRA Notices of Assessment
  • Two years of T1 general tax returns; if incorporated, two years of accountant-prepared financial statements
  • Business license of articles of incorporation.

Mortgage applicants may potentially be asked for additional types of documentation. Many borrowers find it worthwhile to work with a mortgage broker who knows the ins and outs of self-employed mortgages, especially since many self-employed Canadians optimize tax write-offs, which can have the effect of lowering net income.

Other income sources

Borrowers should not forget to provide proof of these other sources of income, if applicable:

  • Child support – a copy of the separation/divorce agreement and three to six months of bank statements
  • Disability – letter of status from their doctor and proof of payments such as bank statements
  • Parental leave – some lenders will recognize full employment income if a letter of employment confirms a return date within one year
  • Pension, Registered Retired Income Fund, investment income – most recent tax assessment and/or T4As for pension income





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