The following is a guest blog post by Alex Lavender of Centum Home Lenders. The type of income, or job, you have plays a key role in determining how you receive financing for your property purchase. The following article will break down the different types of income and their affect on your financing goals.
In this article we are going to discuss the different types of income and 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% off your salaried income before taxes have been deducted. For hourly employment, income is calculated by taking the guaranteed number of hours for the work week multiplied by the hourly rate and then annualized. You may also include overtime income and bonuses as long as they show a two year track record of existence. Other perks may also be used 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. This average will then be used to determine what your annual income is for mortgage qualifying purposes.
Hourly With Non-Guaranteed Hours
Hourly compensation with non-guaranteed hours can be used to qualify for a mortgage but this falls in the category of irregular or fluctuating income. In order to use this income a two year average of your two most recent tax returns will be used to calculate what your income is for qualifying purposes.
Hourly + Commission
This typically applies to salespeople and servers, who are paid on an hourly basis plus some sort of commission or gratuities. This also applies to individuals receiving income based on a 100% commission basis. To determine qualifying income two years of previous tax returns will be required and the qualifying annual income will be the average of these previous two tax returns. If the commissions or gratuities are not shown on the tax return they will not be used for the income calculation.
If you are employed seasonally you may be able to use your income along with your Employment Insurance (EI) 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.
For Self-Employed individuals you will need two years of tax returns to prove your qualifying income. This will be determined by taking the average of your net income on line 150 from the two most recent tax periods. There are exceptions to this rule, as a stated income program can be used 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 can be used for mortgage qualifying purposes. All items such as CPP, OAS, long term disability, and company pensions can be used. In some cases depending on the lender this income can be grossed up 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 be used 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 and some will not and some have policies as to how much can be used for total household income. These types of income are dealt with on a case by case basis.
When you speak with a mortgage professional ensure that you account for all your sources of income. They will be able to guide you and understand what types of income can be used in order for you to qualify for a mortgage.
If you need expert advice when it comes to mortgages I would be more than happy to help, send me an email or give me a call and I’ll get back to you right away.
Centum Home Lenders